In Canberra on Saturday, Minister for Tertiary Education Craig Emerson said that three "substantial savings" had been identified to support school funding.

He explained that the government was ensuring that young people had a "flying start in life."

Dr Emerson said the university sector would be be hit with an efficiency dividend of 2 per cent and 1.25 per cent in the coming two years, saving about $900 million. A further $230 million would be saved by cutting the ten per cent discount students and parents currently enjoy if they pay their university fees up front.

Dr Emerson said that $1.2 billion would be saved by requiring students on start up scholarships to pay the money back, when they had hit an earning threshold.

This followed an announcement from Treasurer Wayne Swan on Saturday that the government would save a further $520 million by cracking down on tax deductions for self-education expenses.

The government has not yet specified how much it will contribute to the Gonski reforms, which will be funded by contributions from the federal and state governments.

But significant funds will need to be found for the education package, which is expected to need an extra $6.5 billion a year when it is up and running.

Funds are expected to be tight in the May budget. Late late year, Treasurer Wayne Swan abandoned Labor's plan for a surplus in 2012-13, in the face of falling tax revenue.

Dr Emerson would not be drawn on whether there were more cuts to the education sector to come in the budget. But he said there was strong growth in the sector.

‘‘What I’m indicating is still, very strong growth in university funding.’’

He said that nothing in the measures announced would stop students from lower incomes from attending university.

Cuts condemned by university sector

Professor Fred Hilmer, vice chancellor of the University of New South Wales and chair of the G08, slammed the cuts, describing them as ''short sighted'' and ''cynical''.

"This is a bitterly disappointing, short sighted move on the part of a Government which claims education as one of its highest priorities. It is an absurdity to seek to provide students with a better education at school by providing a worse experience at university,'' he said.

Universities Australia chairman Glyn Davis said the efficiency dividend would place ''severe strain'' on the sector, which had been encouraged to expand enrolments to enable greater access to higher education. He added that the cuts came on top of the $1 billion that had already been taken out of the system six months ago as part of the mid-year economic and fiscal outlook.

Robbing Peter to pay Paul

Tasmanian independent MP Andrew Wilkie called the cuts "appalling".

"Yes, the Government needs to find the money to fund the Gonski education reforms as well as the National Disability Insurance Scheme. But to try and do so by stripping money out of tertiary education is robbing Peter to pay Paul. Frankly it makes a mockery of all the Labor Party talk about education funding reform," he said in a statement.

Opposition Leader Tony Abbott said the only way to get the investment needed in education was to ''build a stronger economy.''

''And you never build a stronger economy by taxing it and regulating it in the way this government has,'' he told reporters in Sydney.

The Australian Greens said the funding cuts were the direct result of the "government's failure to fix the mining tax."

"Cutting one area of education to fund another is wrong," Greens leader Senator Christine Milne said.