One of the centrepieces of the Abbott government's budget – a new $6 billion fund to encourage state governments to privatise their assets – was gutted by 60 per cent by the Senate.

The asset recycling fund was designed to spur privatisations by offering a 15 per cent bonus to governments that sell off their assets and invest the proceeds in new infrastructure.

An expected $750 million from the sale of the Port of Melbourne could be affected. Credit:Craig Abraham

Of the initial $5.9 billion funding pool, $3.5 billion was to come from axing the Education Investment Fund, which was set up by Peter Costello to drive investment in university research and major capital works projects.

But on Thursday the Senate voted to maintain the Education Investment Fund, leaving a $3.5 billion shortfall for asset recycling.