"It will be prudent, it will be frugal, it will be responsible, but I think when it comes to savings, people will find it pretty dull and pretty routine," he said.

"There's no cause for alarm under this government because we have got the budget situation from out of control to manageable."

Mr Abbott, who a year ago was claiming a budget emergency, has been forced into a retreat because of the political damage caused by last year's document, which contained broken promises and was perceived as unfair.

Measures worth about $25 billion over four years remain either stalled or have been blocked by the Senate.

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Mr Abbott repeated on Wednesday he was happy for now with a trajectory outlined in the recent intergenerational report, which found that based on the budget measures so far passed by the Senate, the budget would come close to balance in 2019-20 before blowing out again.

This is a deterioration from the mid-year budget update released in December which forecast the budget reaching balance in 2019-20 and moving into surplus beyond that.

Bank of America Merrill Lynch economist Saul Eslake said even the trajectory in the Intergenerational Report was optimistic.


It was based on annual average growth of 2.8 per cent over 40 years, growth of 3.5 per cent over the next five years, favourable terms of trade and no tax cuts to return bracket creep in the interim.

"I despair as to how we are going to solve the long-term problem," Mr Eslake said.

The intergenerational report trajectory cited by Mr Abbott shows that by 2054-55, debt would be 60 per cent of GDP and the deficit 6 per cent of GDP.

The mid-year budget update forecast net debt, currently 15 per cent of GDP, would peak at 17.2 per cent of GDP in 2016-17 before falling to below 5 per cent in 2024-25

Mr Eslake said the budget needed to keep tackling structural blowouts in revenue and spending, including broadening the base of income tax by removing tax minimisation opportunities for people on high incomes. Short-term stimulus in the form of targeted infrastructure spending would take pressure off the Reserve Bank to lower rates, an action which only further fuelled the housing market, he said

Chief Executive of the Business Council of Australia, Jennifer Westacott, said she understood the political predicament the government was in and agreed it could not afford a repeat of last year's budget.

But she urged it must keep pressing ahead with structural reform on a gradual basis.

"What we want to see in the budget isa modest correction because what we've learned from last year's budget is that big corrections, the community doesn't have the appetite for them," she said.


"But we do need to see a savings strategy that starts to see those big structural spending programs redesigned in a way that slows the rate of growth (of the program) but starts to improve the service quality."

Mr Abbott said the budget would not contain "anything like the sort of restructuring we saw last year".

Ms Westacott said bipartisanship was important to ensure gradual changes to welfare, pensions and health were not reversed.

"That's got to be done through incremental change. It can't be done quickly but you've' still got to do it."

"There's not escaping that the structural work needs to be done, there's no escaping that the starting position is pretty terrible, and there's no escaping that it's all about pretty effective communication and pretty effective transition."

On Wednesday, The Australian Financial Review reported the government was factoring in further revenue downgrades of $1.8 billion a year after the iron ore price fell below average annual estimates of $60 in the mid-year budget update.

This was reinforced Wednesday when the government's resources forecaster – the chief economist of the Department of Industry – warned that iron ore would stay below the mid-year budget forecasts.

Iron ore will average $US55.60 a tonne in 2016, down from $US60.40 a tonne this year. Last year it averaged $US88.10 a tonne, the Department said.


Still, the Department insists resources and energy export earnings will rebound by 6.2 per cent in 2015-16 to $190 billion, helped by a falling dollar, after the value of exports drop 8.2 per cent in the current financial year.

The budget outlook in the Intergenerational Report has also been hammered by recent decisions to junk or amend polices for political reasons.

In recent weeks, the government has junked the $3.6 billion in Medicare charges, performed a $200 million backflip on defence pay and made available at least $105 million in car industry assistance.

This week, the Senate voted down changes to higher education funding that, when first announced, were worth more than $4 billion in savings over four years.

Shadow treasurer Chris Bowen said Mr Abbott was a hypocrite on debt.

"He's been telling Australians that we're in danger of becoming Greece with 17 per cent debt and now all of a sudden we're told that 50 to 60 per cent is a good result," he said.

"This is just the latest example of the PM and Treasurer being all at sea when it comes to an economic message."

Ratings agencies warned the Abbott government last month that it would need to deliver further spending cuts or tax hikes to maintain the AAA rating stayed in place over the longer term.

Fitch Ratings also said that Australia had less scope than other top-rated economies for an increase in debt levels because of high household debt, offshore borrowings and the economy's reliance on commodity prices.

The most senior institutional banker in Australia, Westpac Banking Corp's Rob Whitfield, called on the federal government and Australian companies to take advantage of extraordinarily low interest rates to lock in cheap, long term funding which could be used to buy productive assets such as infrastructure to drive economic growth.