Treasury boss John Fraser believes wages growth is at a turning point while defending his department's wage forecasts, which some economists have described as optimistic.
Mr Fraser told a Senate hearing on Wednesday he is confident that wages growth can achieve Treasury's forecast of 3.5 per cent by 2020/21, compared with 2.1 per cent now.
Wages growth struck the lowest level in at least 20 years in 2017 at 1.9 per cent and has since only just kept ahead of inflation.
Mr Fraser defended his department's recent forecasting record saying its prediction of the turning point in the world economy was "ahead of the pack".
He noted a wage pick-up in the construction sector in Victoria, parts of Sydney, and in Brisbane.
"We know that higher productivity is the best way to increase real wages across the economy," the Treasury secretary said.
He said the years of slim pickings for workers was due to the "scars" left by the global financial crisis.
A department survey last year found the scars of the 2008-2009 crisis were "far rawer and deeper" than imagined and bosses were being very careful about investment spending.
"Similarly on wages, people were being scared to add to the cost of their production because they were just worried we hadn't really come out of the GFC," Mr Fraser said.
An International Monetary Fund official warned last week that slow wages growth in Australia places some risk on the budget returning to surplus by mid-2021 as forecast.
But Mr Fraser said the projected surplus was not contingent just on the wages forecast.
"It is one of many factors that impact on revenue," he said.
This includes commodity prices, corporate profitability and other tax measures.
More broadly, Mr Fraser said economic news since December's mid-year budget review is generally positive, with the world economy expected to enjoy its best performance since the GFC.
He said employment in Australia had grown strongly, and leading indicators suggested this improvement was expected to continue.
While the mid-year review showed the budget remained on course for a surplus, Mr Fraser warned the positive economic outlook was not an excuse for relaxing efforts to achieve this goal.
"There are always risks to the global economic outlook and we must be as prepared as we can to face them," he said.
