A MASSIVE decline in revenues could force the Newman Government to adopt many of the Costello Review's most controversial recommendations, including asset sales.

The Courier-Mail can reveal the Government's Budget in June will predict a fiscal deficit for 2013/14 of more than $8 billion, compared to the $4.6 billion estimated in November.

Combined with this year's deficit of $10 billion, the total red ink racked up by the Government could exceed $18 billion by the middle of next year if no action is taken.

Huge writedowns on stamp duty, royalties and payroll revenue predictions are responsible for the bulk of the state's fading fiscal fortunes.

The deficit figure comes despite the Government reining in spending by more than $5.5 billion last year by cutting thousands of public servant jobs and cancelling funding for programs.

A senior Government source yesterday described the Budget position as "unsustainable", saying "there is simply no money left".

"The Government has to look at all options to stop the problem we inherited from Labor which is getting worse," the source said.

"A return to surplus in 2014/15 is going to be very tough.

"The Government has little option other than to make further hard decisions."

High-level discussions are under way to decide where further spending reductions could be identified.

The Government is also considering the far-reaching recommendations in former federal treasurer Peter Costello's review of state finances.

The Costello Review, which the Government will release by the end of the month, recommends a massive suite of asset sales to reduce debt and infrastructure payments.

It comes as a new front in the war between the Newman and Gillard governments opened up yesterday, with the latest stoush centred on more than $725 million in disaster payments.

Treasurer Tim Nicholls said the state may not be reimbursed for the damages bill because the Gillard Government was making unreasonable demands before releasing the money.

However, Attorney General Mark Dreyfus insisted the money was paid in May 2012 but the Queensland Auditor General had refused to sign off on the state's spending to prove it went to the recovery effort.

Additional reporting Robyn Ironside and Steven Scott

Originally published as Asset sales loom as state debt soars