Labor has refused to back a Coalition bill that would lift the ceiling to the $500 billion the Treasury says it will need at some time in the next three years. It says it will agree only to an increase to $400 billion. Compromising comments: Tony Abbott referred to the Greens as "economic fringe dwellers" during the election campaign. Credit:Fiona Morris A spokeswoman for Mr Hockey noted the prospect of a deal with the Greens, saying he was trying ''to bring some reason to the issue because there is a growing urgency around the operation of government and the impact on financial markets''. Complicating the approach are remarks made by Prime Minister Tony Abbott during the election campaign who referred to the Greens as ''economic fringe dwellers''. The Coalition promised during the election campaign to return the budget to a surplus of 1 per cent of GDP ''within a decade''. However, an analysis prepared by the Canberra consultancy Macroeconomics before this month's official update finds budget deficits all the way until 2026-27, with no end in sight beyond that.

Whereas the official pre-election update pointed to a small surplus of $4.2 billion in 2016-17, Macroeconomics predicts a deficit of $6.6 billion in that year, rising to a deficit of about $18 billion in 2020-21 and each year thereafter. This year Macroeconomics predicts a deficit of $33 billion, suggesting the budget has deteriorated $2.2 billion from the update released in August. The extra funds will necessitate more borrowing along with the $8.8 billion the Treasurer is sourcing to top up the Reserve Bank's reserve fund. Stephen Anthony, the former Treasury and Finance Department specialist who heads Macroeconomics, says he factored in a more rapid slide in minerals prices than the Treasury has. ''All Australian governments should take precautionary measures to prepare for the end of the mining investment phase of the China boom," he said. "Without the China boom from 2004, Australia's fiscal position would be more akin to that of the United States.''

The new government should ''cut early and cut hard''. The Howard government cut spending by 0.5 per cent of gross domestic product in its first budget and 1.2 per cent in its second. Cuts of that order today would save $8 billion and $16 billion. Dr Anthony said it would have to attack corporate welfare and middle- and upper-class welfare, ''especially assistance to the aged''. The Seniors Supplement paid to retirees too well-off to get the pension costs $300 million a year. Family Tax Benefit B, which goes to families ''where one parent chooses to stay at home and look after the children'', costs $500 million more than it would if the threshold was cut to a generous $100,000. Ending the Clean Energy Household Assistance Package and unwinding associated income tax cuts would save $5 billion a year. ''Without a carbon price there is little need for the package,'' Dr Anthony said.