By Emily Verdouw in Canberra

Payments to veterans are set to put further pressure on the budget as the federal government clears a backlog of claims.

Federal Treasurer Jim Chalmers said an extra $1.8 billion in payments would impact the mid-year budget update as the government worked to “pay veterans what they’re owed” and clear a backlog.

“We’re doing the right thing by our veterans and that will have an impact on the budget,” Dr Chalmers said.

“Pressures on the budget are intensifying, estimates variations like payments to veterans are a big part of the story and you’ll see that in the mid-year update.”

The $1.8 billion comes on top of the $6.5 billion in additional veterans’ payments in the 2024/25 budget.

The government has accused the coalition of failing to adequately fund the Department of Veterans’ Affairs teams responsible for processing veteran claims during its time in office, resulting in a logjam of some 42,000 unallocated claims.

The claims were cleared at the end of February 2024 ahead of a March 2024 deadline set by the Royal Commission into Defence and Veteran Suicide.

However, action to clear the backlog has put more pressure on the budget as the department continues to pay more veterans their entitlements.

The federal government is investing $254.1 million across four years to upgrade and sustain IT systems to ensure timely payments and better access to services for veterans and families.

“The Liberals think supporting our veterans is ‘wasteful spending’ but we don’t,” Dr Chalmers said.

“Supporting those who served our country is our responsibility.

“We’re paying veterans what they’re entitled to.”

Finance Minister Katy Gallagher criticised the previous government’s handling of veteran claims.

“Previous administrations did not take sufficient steps to ensure veterans received the payments they were entitled to,” she said.

“Now, in opposition, they have not supported the current government’s changes aimed at addressing these issues.”

The blowout comes at a critical time for Australia’s economy.

After a series of unexpectedly strong budget returns, the economic outlook is dimming.

Analysts predict the budget’s bottom line will worsen by $4.7 billion across the next four years due to slowing tax revenues and increased spending on things such as subsidised child care and energy rebates.

The Albanese government released its response to the royal commission’s final report earlier in December, outlining a long-term plan for what it said was a comprehensive reform to support defence personnel, veterans and their families.