THE federal government is prepared to jettison its promise to return the budget to surplus this financial year rather than make further harsh cuts should economic conditions continue to deteriorate, it has been revealed.
To salvage a slender surplus of $1.1 billion for this financial year and keep the budget in surplus for the years beyond, the government yesterday unveiled another $16.4 billion in savings over four years.
These included $1.1 billion in cuts to the 30 per cent private health insurance rebate, a paring back of the baby bonus from $5000 to $3000 for second and subsequent children, and an accounting change that will bring forward $8.3 billion in company tax revenue by requiring the tax to be paid monthly, not quarterly.
The higher education sector took a $1 billion hit that included the freezing of $500 million in research grants.
The mid-year budget update says the cuts were needed to protect the surplus as declining global growth and commodity prices stripped the budget of $4 billion in revenue for this financial year, and $21 billion over four years, since the forecasts in the May budget.
It warns the ongoing risks to the economy are ''firmly on the downside''.
Wording deliberately inserted into the document warns that having to make more cuts this financial year should the $1.1 billion surplus begin to disappear must keep in mind the impact on economic growth and the vulnerable.
''The government will continue to balance these considerations, particularly if there is any further deterioration in economic conditions or in tax receipts,'' it says.
''[It] will continue to ensure its approach to savings is appropriate for the economic conditions and is fair on the community.''
The Treasurer, Wayne Swan, declined to confirm whether he would cut again if necessary, saying instead: ''We will ensure that our budget settings ensure jobs and growth.''
Business has urged the government to stop striving for a surplus in straitened times to meet a political deadline, saying it risked hurting the economy.
Yesterday's document forecasts a $1.1 billion surplus for 2012-13, down $400 million on the $1.5 billion forecast in May.
It forecasts unemployment to average 5.5 per cent this year and next, and growth to stay at a trend rate of 3 per cent, down from 3.25 per cent forecast in May.
Lower tax receipts were the main culprit, due to falling mining profits caused by declining commodity prices.
Company tax fell sharply and the Minerals Resources Rent Tax, which began on July 1, had its forecast earnings in its first four years downgraded by $4.3 billion from $13.4 billion to $9.1 billion.
There was no allocation for the expensive National Disability Insurance Scheme and the Gonski reforms to school funding, both of which will not require full funding until beyond the four-year forward estimates period.
But Mr Swan said the long-term structural savings created by the cuts to the baby bonus and the private health rebate would multiply over time, freeing up money in future years for these expensive reforms.
''We've got a long history of this,'' he warned. ''We're going to do more of it.''
After means testing the private health insurance rebate this year, the government said yesterday that from April 2014, the rebate would no longer match annual premium increases but be increased by inflation, which is lower. This will save $700 million over three years and add about $28 a year to the premiums for families and $14 for singles.
Also, the rebate will no longer cover the penalty component applied to premiums for people who take out insurance when aged over 30. This will save another $390 million.
The baby bonus cuts begin on July 1 next year and will save $461 million over three years.
The company tax changes to be phased in starting with the biggest firms on January 1, 2014, will not increase the tax paid by business. But organisations such as the Australian Industry Group said having to pay tax more often will hurt cash flow and impose higher compliance costs.
