Treasurer Joe Hockey won’t be panicked into making more budget cuts for fear of harming the economy.
Such assurances came as a major US investment bank cut its Australian economic growth forecasts for this year and the next in anticipation of soft consumer spending.
Mr Hockey is due to hand down his mid-year budget review in December.
It will have to take into account an unexpected decline in export revenue due to a 30 per cent drop in iron ore prices and less tax revenue from lame wages growth.
Also, a number of measures from the May budget remain stuck in the Senate.
But Mr Hockey says the economy is still growing and he does not expect a bigger deficit next year.
“The starting point is that you shouldn’t write off our opportunities to get things through the parliament,” he told ABC television on Thursday.
He denied that was wishful thinking with a hostile Senate, pointing out the government had managed to negotiate deals on the carbon tax, direct action and the mining tax repeal.
The treasurer said the federal government was also working hard to open up new trade agreements in Asia to broaden the market.
“We are not going to do anything in the mid-year economic update that harms the Australian economy,” he also told ABC radio.
“It’s not about panic. It’s not about responding with a whole range of further cuts.”
It was about ensuring that problems were recognised and the next budget crafted appropriate solutions.
But Opposition Leader Bill Shorten said the treasurer needed to bring in a mini-budget now.
“His existing budget has sunk without trace,” he told reporters in Sydney.
Mr Hockey also faces the risk of slower consumer spending.
This is the key factor behind US bank JP Morgan trimming its Australian 2014 growth forecast to three per cent from 3.1 per cent and to 2.8 per cent from 3.3 per cent for 2015.
The bank’s chief economist in Australia, Stephen Walters, said consumer sentiment was brittle and the compression of household income was likely to linger into next year, particularly because some federal budget savings had been delayed.
Slower growth will result in the jobless rate reaching 6.5 per cent in 2015, superseding its previous estimate of 6.25 per cent.
“Fiscal savings measures stalled in the Senate may prompt officials to look elsewhere for savings, including at public sector employment levels,” Mr Walters says in a note to clients.
Gauges of consumer sentiment released this week showed a sluggish improvement in confidence.
Figures released on Thursday showed consumers are worried about the inflation outlook.
This was despite the recently released consumer price index easing to an annual pace of 2.3 per cent, comfortably within the Reserve Bank’s 2-3 per cent inflation target.
The Melbourne Institute consumer inflationary expectations index jumped to 4.1 per cent in November from 3.4 per cent previously, its highest level since May.