Treasurer Josh Frydenberg said the key reason for the improved bottom line since he delivered the budget was the strong economic recovery as COVID-19 restrictions were phased out.
The underlying cash balance for the 2021/22 financial year to December 31 was a deficit of $37.3 billion against the mid-year budget update figure of $45.8 billion, according to the latest Finance Department figures.
Receipts were $6.6 billion higher than in the mid-year update and payments were $1.9 billion lower.
Mr Frydenberg said Australians were still facing a challenging time with the spread of Omicron, the impact on supply chains and the pressure on the health system.
"But working together, Australians will get through this," he said.
Finance Minister Simon Birmingham said deficits were still running higher than the government wanted.
But there was a clear dividend from more people being in work and fewer people on welfare payments.
Asked whether the federal government would be prepared to use some of its windfall to provide more support to the states and territories where businesses and households were struggling, Senator Birmingham said national cabinet had set its rules.
"What was broadly agreed at national cabinet is the Commonwealth will do economy-wide measures and individual payments, but where there is localised action it is right for the states and territorites to do that and tailor it," he told Sky News on Friday.
He said the federal government had provided over $300 billion in financial support.
Labor deputy leader Richard Marles said the government should not be ruling out support at a time when businesses needed it the most, especially with rising petrol prices and difficulties obtained rapid tests for workers.
"When the going gets tough, Scott Morrison goes missing," Mr Marles said.
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