By Stella Qiu
SYDNEY (Reuters) -Australia&nbsp;is set to&nbsp;deliver&nbsp;its&nbsp;first&nbsp;budget&nbsp;surplus&nbsp;in&nbsp;15&nbsp;years&nbsp;on Tuesday, as its coffers bulge with tax windfalls from higher commodities prices and wages, giving it room to dole out cost-of-living relief amid an inflation squeeze on households.
However, fiscal challenges loom large with resource prices well off their peaks and the domestic economy slowing due to high interest rates.
The&nbsp;budget&nbsp;will forecast a small&nbsp;surplus&nbsp;of around A$4 billion ($2.71 billion) for the fiscal year ending in June, and smaller deficits for the subsequent&nbsp;years&nbsp;compared with previous forecasts, according to excerpts seen by Reuters on Monday.
That is a huge turnaround from a projected deficit of A$36.9 billion in October, although underlying structural pressures are seen keeping the&nbsp;budget&nbsp;in the red in the&nbsp;years&nbsp;ahead.
The centre-left Labor government has announced A$14.6 billion in cost of living relief, which Treasurer Jim Chalmers promises won't worsen inflation as the central bank raises rates to keep price rises in check.
"We're very conscious, obviously, of the inflation challenge in our economy. It remains the dominant concern that we have about the economy, particularly over the next little while," Chalmers said on Tuesday.
"And so what we've done is we've put together a cost-of-living package, which recognises that people are doing it tough but which doesn't make the inflation problem in our economy worse."
Chalmers is expected to hand down the&nbsp;budget&nbsp;at 7:30 p.m. (0930 GMT).
The government will also set aside a A$11.3 billion for wage rises for aged care workers and extend financial support for single parents, while banking most of the savings to put the&nbsp;budget&nbsp;on a more sustainable footing.
To boost revenues, it would also raise the tax paid by the offshore LNG industry, a move that should increase revenue by A$2.4 billion over the next four fiscal&nbsp;years, and hike tobacco tax by 5% a year over the next three&nbsp;years.
Defence spending is set for the biggest increase since World War Two amid plans to spend A$368 billion out to the 2050's on nuclear powered submarines from the UK and United States.
The government is also set to forecast a lower unemployment rate than previously projected, with real wages expected to return to positive growth earlier than previously forecast.
The previous Liberal National government had "Back in Black" mugs made in 2019 when it came within a whisker of a&nbsp;surplus, only for emergency pandemic spending to blow a record-breaking hole in the accounts.
($1 = 1.4758&nbsp;Australian dollars)
(Reporting by Stella Qiu; Editing by Sam Holmes and Shri Navaratnam)

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Australia to deliver first budget surplus in 15 years