Treasurer Wayne Swan says the May 12 budget requires some ``very, very tough decisions'' raising speculation there will be cuts to middle-class welfare.
The government has already hinted people earning more than $150,000 could be taxed more heavily in the long term to pay for initiatives such as pension reform.
Mr Swan was asked on Tuesday if he'd need to cut harder into middle-class welfare for this budget.
"It certainly means taking some very, very tough decisions in this budget to protect the national economic interest in the short term, the medium term and the long term,'' he told ABC Radio.
Access Economics economist Chris Richardson said this could result in means testing the private health insurance rebate, Medicare safety net, and family tax benefit B.
He said there had been big spending and big tax cuts under both Labor and Coalition governments over the past four or five years that were not affordable in the long term.
"They have got to sell a difficult message on budget night. Short term, definitely more spending to support the economy, longer term they need less spending to repair the budget,'' Mr Richardson said.
The independent forecaster is predicting a whopping budget deficit of $50 billion and the jobless rate soaring to 8.5 pr cent by the end of 2010, which would leave close to a million Australians unemployed.
Treasury said the budget would contain an additional forecast year for 2010-11, which will show the economy growing below trend ``but transitioning towards above-trend growth''.
But the opposition said widening the scope of budget economic growth predictions did not mean they would be any more accurate.
It was just a way of massaging the numbers for political purposes, the opposition said.
Ordinarily, the budget would have published growth forecasts for
2008-09 and 2009-10 and then assume trend growth of about three per cent for the projections for 2010-11 to 2012-13.
"The most important thing we are doing is providing more accurate, more contemporary information,'' Mr Swan said.
"We are in extraordinary times. We're in the middle of a global recession. The forecasts do need to reflect that.''
In a briefing to state treasurers, Treasury Secretary Ken Henry said that while the economy was expected to recover in
2010-11, it would remain below trend.
"The standard assumption of trend would, therefore, tend to overstate the fiscal position in that year,'' he said.
Opposition treasury spokesman Joe Hockey said changing the methodology did not mean predictions would be any more accurate given the economy was changing dramatically.
"Treasury couldn't get the figures right for a 12-month forecast let alone to get forecasts and projections right over four years,'' he told ABC Radio.
Opposition finance spokeswoman Senator Helen Coonan also accused the government of changing the rules for political needs.
"The government now having changed the rules of the game for forecasting means that they will try to tell the worst story for the next two years and then tell a story about recovery in the out years,'' Senator Coonan told Sky News.
Mr Swan rejected suggestions the government's predictions of a quicker than expected recovery in the Australian economy flew in the face of International Monetary Fund (IMF) forecasts.
Opposition Leader Malcolm Turnbull said the treasurer was entitled to have his forecast.
"But if you want to make sure a recovery occurs, you've got to have policies that support a recovery,'' Mr Turnbull told reporters in Adelaide.
"Right now, the government is running up larger and larger debt. Those heavy debts will slow a recovery because the higher the level of government debt the higher the level of tax and the higher interest rates will be in the future.''
Prime Minister Kevin Rudd said Mr Turnbull should come clean on his stance on budget deficits and government borrowings.
"It's time for Malcolm Turnbull to get fair dinkum about his own $177 billion deficit and debt strategy,'' Mr Rudd told reporters in Canberra.
"Which, when he is pressed, he admits to and then in the next moment seeks to attack temporary deficit and temporary borrowing on the part of the government.''
AAP
