'Labor values' drive bid to get in the black

Andrew Probyn and Shane Wright Canberra

Wayne Swan will tonight reveal a Budget surplus so small it could be wiped away by a hostile Senate, a natural disaster or another international economic convulsion.

_The West Australian _understands the Treasurer will tonight forecast a surplus for the coming 2012-13 financial year of $1.5 billion.

It is in line with what Mr Swan forecast in his mid-year update, but well short of a "hung Parliament premium" required to survive an assault from the Greens, independents and the coalition.

It is understood that the surplus estimate for the following year, which will take in the expected Federal election in September 2013, will be $2 billion - again, in line with the mid-year update.

With billions of dollars axed from Defence and welfare, Mr Swan will tonight reveal at least another $5 billion in savings for the 2012-13 financial year.

The Government is poised to chop overseas aid but with Julia Gillard likely to face a fierce internal backlash on any retreat from the millennium development goals, Foreign Affairs Minister Bob Carr has already agreed to brief concerned Labor MPs tomorrow.

But there are also expected to be one-off payments to low-income earners to cover cost-of-living pressures caused by the introduction of the carbon tax on July 1.

These bonuses would all be on top of the already-legislated carbon tax compensation of pension increases and tax cuts.

The Prime Minister told colleagues yesterday it would a Budget of "Labor values".

She said she would "conquer" the political pressures and promised to follow the Budget with a national hard sell campaign promoting household assistance for carbon pricing, aged care reforms and the national disability insurance scheme.

Some of the savings that will have to face the gauntlet of the Greens, independents and coalition include the tightening of payments to single parents, the halving of superannuation tax concessions for people who earn more than $300,000 a year and an overhaul of living-away-from-home allowances for high-paid executives.

Losing those savings alone could drive the Budget back into deficit.

The Budget will also contain deep cuts in the public service that will upset unions.

Treasurer Wayne Swan told Cabinet members last night the Budget would give the Reserve Bank the space necessary to cut interest rates if required.

"(The) Budget will show that the Australian economy walks tall in the global economy but supports low and middle-income earners at home," he said.

Mr Swan deflected questions about Labor's planned company tax rate - legislation that was promised this week - and instead spruiked other steps to support small business, such as the "loss carry-back" initiative announced on Sunday.

This will allow firms to apply operating losses to a preceding year's income to reduce tax liabilities from July.

Shadow treasurer Joe Hockey signalled the Opposition would play hardball on all the Government's proposals, saying he wanted to see the detail of the planned SchoolKids Bonus.

The social services lobby is fearful programs for low-income Australians will be targeted for extra cuts simply to deliver on the Government's Budget surplus pledge.

"We contend that this is unnecessary and that a surplus should not come at all cost," Australian Council of Social Service chief executive Cassandra Goldie said.

During caucus, two members of the Left faction, Stephen Jones and Senator Doug Cameron, spoke out against planned cuts to welfare which will involve single parents losing their parenting payment and being put on the dole when their youngest child turns eight.