The Federal Government is tightening its squeeze on the bureaucracy and winding back spending on the ''education revolution'' to help return the budget to surplus.
Treasurer Wayne Swan issued the Mid-Year Economic and Fiscal Outlook yesterday, containing forecasts mostly in line with expectations.
The Government expects the unemployment rate to peak at 6.75per cent next year, rather than 8.5 per cent. It is also more optimistic about economic growth, expecting 1.5 per cent in 2009-10 instead of the minus 0.5 per cent predicted in the May budget.
The stronger growth means smaller deficits, though not for this financial year, which is still expected to be about $58 billion. That will help reduce the peak level of net debt by $50billion to $153.2 billion in 2013-14. The Government has identified $850 million in savings over four years, with $383.5 million coming from ''efficiencies'' within government departments.
The Australian Taxation Office and CSIRO will generate some of the largest savings: $109.6 million and $37.4 million respectively.
The bureaucracy has identified savings through ''removing duplication and overlap, reducing corporate overheads, rationalising property and scaling back resources''.
These are designed to help offset new spending since the budget and rising bills for existing programs.
For example, health spending is expected to increase by $4.8 billion over four years mainly because of rising bills for Medicare benefits, the cost of subsidising pharmaceuticals and private health insurance.
The Government will also make changes to the ''education revolution'', a $16.2 billion part of the economic stimulus package.
It will delay spending $500 million on buildings in primary schools from 2010-11 to 2011-12. And $200 million will be cut from the education stimulus spending and returned to the Education Investment Fund.
Mr Swan warned that the rapid withdrawal of stimulus spending ''would just be a recipe for sending our economy down the gurgler''.
He pointed out this was the first mid-year economic update to contain net savings.
''We've been very serious about this fiscal rule that we put forward first in February and then again in the budget this year of offsetting new spending.
''It shows that we are fair dinkum about sticking to our fiscal strategy.''
Opposition treasury spokesman Joe Hockey said the report showed the Government's ''reckless spending was putting a wrecking ball through the budget and leaving us with seven years of deficits and record levels of debt''.
''Well, the Government has to cut expenditure, otherwise it means higher interest rates,'' he said before today's meeting of the Reserve Bank, when the board is tipped to raise interest rates.
The mid-year outlook also indicated there might be more changes to stimulus measures in the future.
''The Government will continue to monitor the economic recovery and make any further adjustments that are necessary to ensure the stimulus suit future economic conditions,'' it said. But environmentalists warned that taxpayers could not afford to boost compensation for big polluters under the emissions trading scheme.
Treasury's revised estimates of the costs of the Carbon Pollution Reduction Scheme, which was expected to deliver $208million in savings over the forward estimates, show it is now predicted to cost about $1.2 billion. The scheme is expected to cost $2.5 billion over the coming decade.
Mr Swan said there was not a ''lot of room for any further discretionary decision'', but the Government would continue to negotiate with the Opposition in ''good faith''.
Mr Hockey said the revised outlook reinforced the flaws in the scheme.
''The fact that there has been a $1billion blow-out in the Government's own emissions trading scheme illustrates that even though the legislation still hasn't passed through the Parliament, the scheme in its current state is flawed,'' he said.
Australian Conservation Foundation head Don Henry said the Government should strengthen the scheme.
''The big polluters' claims for more compensation ... cannot be justified in light of today's economic outlook,'' Mr Henry said.
''The emissions trading scheme won't be environ-mentally or economically effective if it is billions of dollars in the red because of excessive handouts to big polluters.''
The Government wants to pass its legislation before global climate talks in Copenhagen next month.