By Renju Jose

SYDNEY Australia's budget surplus for 2022/23 will be bigger than the A$4.2 billion ($2.81 billion) projected in the May budget but high inflation and global challenges will "significantly slow" the domestic economy, Treasurer Jim Chalmers said on Wednesday.

Strong jobs growth and bumper mining profits will swell government coffers, similar to the forecast during the federal budget, while spending curbs and A$40 billion in savings have also boosted the budget bottom line.

"I can reveal that we're expecting the surplus will be bigger than forecast in May," Chalmers said in a speech to the Property Council of Australia. "In fact, we're in a significantly better position than we forecast."

Australia's Labor government in May boasted the first budget surplus in 15 years for the year to June 2023, a huge turnaround from the A$37 billion shortfall forecast last October.

But Chalmers said the increases in interest rates by the Reserve Bank of Australia (RBA), which now sit at an 11-year high, and warnings more tightening may be required to push inflation to target will put the brakes on economy.

"The 400-basis point increase in rates since before the election last year, is the most significant tightening cycle the RBA has undertaken since the inflation targeting era began," the treasurer said. "And this, along with global challenges, will significantly slow our economy."

The Australian economy could dip to 1.5% in 2023/24 from 3.25% this fiscal year, he said.

Ahead of the May inflation data due to be released later on Wednesday, Chalmers said high inflation remained the biggest challenge for the economy although he hoped it could return to RBA's target of 2-3% in 2024/25 from about 7% now.

"We expect (inflation) to stay higher than we'd like, for longer than we'd like, but still tracking in the right direction," Chalmers said.

($1 = 1.4963 Australian dollars)

(Reporting by Renju Jose in Sydney; Editing by Sam Holmes)