Nor should the government feel embarrassed if it has to abandon its promise to deliver budget surpluses of at least 1 percent of gross national product (about $10 billion) if a looming recession requires more spending or tax cuts.

The Reserve Bank now expects that the terms of trade will fall by about 5 percent a year instead of the 16 percent growth in 2008-09 which Treasury estimated in the May budget. This means that corporate tax on export earnings will fall belowprojections. With domestic demand also falling, profits for other companies will also be hit. Likewise, personal tax receipts will be hurt by a rise in unemployment.

In these circumstances, there is no point in preserving the surplus come hell or high water. That would require an increase in tax rates and cuts in spending which would only frustrate the Reserve Bank's attempts to stimulate growth by cutting interest rates. Yet the Treasurer Wayne Swan and the Finance minister Lindsay Tanner have given the impression in recent days that they are reluctant to reduce the budget surplus.

Last week Swan implied that he can't increase the base rate age pension because this would cost $2 billon a year. If an immediate economic stimulus is needed to offsetfalling demand, however, this is an acceptable way to do so. Cutting the 30 percent tax rate would also help. Costs could partly recovered by broadening the tax base.

Perhaps Swan wants to focus on spending that improves the productive base of the economy. That's fine. Although spending on infrastructure can’t happen overnight, a lift in some areas of education and research and development can occurfairly quickly. A good start would be to reverse the ill-conceived cuts to the CSIRO and the Australian Bureau of Statistics made in the May budget.

Fortunately, there is a painless source of revenue that doesn't require a tax increase. A simple change in the Future Fund's goal of paying for the pensions of a dwindling band of retired public servants after 2020 would offer big gains. With most publicservice pensions now financed on a contributory basis, the Fund’s goal never made any public policy sense. This minor task can be safely left until 2020 when Australia will be a wealthier place in 2020.

The $3.5 billion available annually from earnings on the Future Fund should be allocated each year for education, research and other areas that meet a new goal of boosting productivity rather than the consumption spending of retired public servants after 2020. This change would allow the government to meets its promise an "education revolution" without touching a cent of the capital in the Future Fund.

There is no need to change the goals of the Health, Education and Building Australia Funds established in the budget with $20 billion from last year's surplus and an anticipated $20 billion on form this year's. The latter $20 billion is most unlikely to materialise. But there is no reason why the government can't still devote a total of $40 billion to investment in these areas by dipping into future surpluses, even if they are smaller than previously anticipated.

In any event, the government has to convince the public that it is no longer responsible to stick with the mindset that a big budget surplus is always good.

Apart from cutting interest rates, the Reserve Bank has committed billions of dollars to trying ot stimulate the economy by improving liquidity in the financial markets. But progress is difficult when markets are so skittish.

The chance of making headway with a well-targeted switch in the focus of budgetary policy is much better. The Rudd Government should grab it with alacrity. It should never forget that when Paul Keating was Treasurer his slowness in adjusting to changing circumstances led to unemployment going above 10 percent in the early 1990s and took years to unwind.