Charities have been left reeling after nearly $8 billion was cleaved out of Australia's foreign aid program in the federal budget.

A whopping $7.6 billion will be cut from the aid program over five years, making it the biggest savings measure announced in Tuesday's budget.

Aid groups are stunned that Australia's overseas assistance package - which costs just more than one per cent of the entire budget - was hit so hard.

"Where we cut says a lot about us as a nation and our priorities," Australian Council for International Development executive director Marc Purcell told AAP.

"Cuts that hurt the poorest people in our region, that are struggling on $2 per day, is incredibly disappointing."

The Abbott government announced in January it would slash aid spending to $5 billion a year, but promised to peg annual increases to the rate of inflation.

But the budget revealed the government would not start those CPI increases until 2016/17, in effect freezing aid expenditure for two years.

The sector calls it another broken promise.

"This represents a cut in real terms, and it will see a steady decline in the generosity of the aid program," World Vision Australia chief executive Tim Costello said in a statement.

He said more than 20 per cent of the savings in the federal budget came from foreign aid, the biggest single contribution of any category.

The government cut $2 billion in 2017/18 alone by abandoning Labor's pledge to ensure aid spending equated to half of one per cent of gross national income by that time.

The government hopes to save $400 million from the merger of Australia's aid agency AusAID with the Department of Foreign Affairs and Trade in September.