A leading business group has warned the Abbott government that deep spending cuts in the May budget will hurt the already weak economy.

The treasurer, Joe Hockey, has been preparing the public and the business community for an austere first budget, declaring the “age of entitlement” had been replaced by the “age of responsibility” for both households and industry.

But the Australian Industry Group has cautioned Hockey not to try and return the budget to surplus too fast, saying it should appropriately take the rest of the decade.

It argues the government should increase the commonwealth’s spending on training by 3% by 2025; quarantine key industry and research programs from cuts; and protect funding to the Australian Renewable Energy Agency (Arena) – measures it argues will ensure growth and help jobs shift to new industries as the investment phase of the mining boom slows.

“It is critical that the path to fiscal consolidation does not worsen the current patch of slow growth in the economy,” it argues in its budget submission.

“AI Group’s close liaison with a broad cross-section of the business community suggests clearly that the economy is very unlikely to be in a position to withstand big aggregate spending cuts or tax increases in 2014-15 without provoking slower growth and lower revenue collections.

“This is, essentially, a short-term challenge and is about the timing of measures and their near-term impact rather than their extent over the remainder of the decade [which is the appropriate timeframe to plan for a fiscal consolidation of the magnitude that is required].

“Fortunately, Australia’s fiscal position is still in good enough shape to allow a little breathing space before a longer-term fiscal consolidation, and the emphasis in assessing the 2014-15 budget should be on the credibility of savings measures that grow over and beyond the forward estimates rather than on the anticipated bottom-line outcome for the 2014-15 year.”

The AI Group says the government should spend money to strengthen the non-mining sectors because this would leave government revenue less at the mercy of fluctuations in global commodity prices.

The group has called for a gradual 3% funding increase in spending on training, and says co-operative research centres and programs helping industries to innovate, such as Enterprise Connect and industry innovation precincts, should not be cut at all.

The government is already preparing to cut the number of industry innovation precincts, now called collaborative centres of excellence. Its website says only that “the government is currently considering the future direction of the industry innovation precincts program. Stakeholders will be advised once a decision has been made.”

Industry programs are often high on the list of spending cuts prepared by the treasury and finance departments.

Although the government has proclaimed a “line in the sand” on payments to industry, the AI Group says it should consider new tax breaks for industries investing in training and innovation. It says the government should not cut funding to Arena, arguing it has the potential to lower future energy costs.

The coalition has already cut $435m from Arena and will proceed with the former Labor government’s plan to defer more than $300m in Arena’s funding.

The AI Group is calling for an increase in annual immigration to 220,000.

The government has given its commission of audit, chaired by the Business Council of Australia chairman, Tony Shepherd, the job of finding deep spending cuts that will deliver a budget surplus of about 1% of GDP – or about $26bn – in 2023-24. The December budget update showed a deficit of $47bn this year and deficits stretching out to 2023-24.

Hockey has said he expects to adopt most of the commission’s recommendations. The first phase of the report is expected to be delivered within days and the second phase by the end of March.