Not just home owners feeling sting of interest rate rises

The mid-year economic and fiscal outlook update, to be released on Wednesday, is expected to show a significant increase in the cost of borrowing money up to 2033-34.

Despite efforts by the government to reduce the nation's debt, interest payments will become the fastest growing area of government spending, overtaking the National Disability Insurance Scheme, which is facing its own financial reckoning.

According to the Treasury forecasts the average cost of new borrowing will be 4.7 per cent, compared to 3.4 per cent at the time of the 2023-24 budget. That recalculation will add $80 billion more in interest payments over the next 11 years.

With inflation continuing to fall and last week's payroll data showing the demand for workers was finally starting to ease, economists believe the risk of further interest rate rises has reduced.

But the nation's gross debt is now not expected to peak until 2027-28. At its peak it will account for 35.4 per cent of Australia's gross domestic product.

Federal Treasurer Jim Chalmers said the unwelcome news meant interest would cost the federal government tens of billions of dollars more than previously expected as borrowing costs both domestically and on the international market climbed.

"Higher interest rates are hurting households and they're hurting the budget as well, and that's what our mid-year outlook will show on Wednesday," Mr Chalmers said.

He blamed the former government for running up debt during its time in power.

Government liabilities soared during COVID as the Morrison government poured billions into programs like JobKeeper to sustain the economy and employment during the pandemic.

"We're getting government debt on a better trajectory, but that debt is becoming more expensive to service. Our responsible economic management is getting the budget in much better nick but higher interest rates aren't helping," he said.

MYEFO forecasts are also expected to show net overseas migration levels have already peaked in the last financial year and will continue to decline.

Prime Minister Anthony Albanese announced on Saturday an overhaul of the immigration system following a once-in-a-generation review which determined the system of visas was "badly broken" and in need of a 10-year rebuild.

The review by former Department of Prime Minister and Cabinet head Martin Parkinson found abuse of the international student visa system rife, with student enrolling in courses that did little to add to either their skills or to the national interest.

"We are determined to fix this," Mr Albanese said on Saturday, announcing the overhaul which will also include tougher rules for temporary visa holders.

A jump in the number of international students returning after the end of COVID lockdowns accounted for more than half the 510,000 net overseas arrivals during the 2022-23 financial year. That figure is expected to fall to to 235,000 by 2026-27.