The Turnbull government is considering a $400 million a year cut to the overseas aid budget that would reflect the economic growth of some neighbours but still send Australia’s overall contribution to an all-time low.

Fairfax Media has been told the Department of Foreign Affairs and Trade is “modelling” ways to slice 10 per cent from aid budget even though huge cuts since 2014 have already reduced Australia’s aid contribution to just 22 cents for every $100 of gross national income, the smallest share on record.

Sources said one potential option is to “substantially cut” aid to nations in south-east Asia which have reached “middle-income” status and are now more capable of funding their own development, such as Indonesia.

Another alternative being canvassed is for Australia to stop delivering aid in one whole sector, such as health. A combination of national and sector-based cuts is also possible.

Tim Costello, the executive director of aid advocacy group Micah Australia, said if the government axed the aid budget it would be depriving the world’s poorest people to help pay for tax breaks, including a reduction in the company tax rate for big business before the Senate.