ECONOMISTS fear the Gillard government may struggle to achieve its latest budget surplus forecast but its efforts to find savings could help push interest rates lower.
Treasurer Wayne Swan on Monday announced $16.4 billion in savings over the next four years as the government tries to keep its promise of returning the budget to surplus in 2012/13, in the face of falling tax revenues.
The government is now forecasting a surplus of $1.1 billion for the year, down from the $1.5 billion predicted in May's budget, according to its mid-year economic and fiscal outlook (MYEFO).
It also revised its forecast for gross domestic product (GDP) growth for 2012/13 to 3.0 per cent, from 3.25 per cent previously, while its expectations for the unemployment rate remained unchanged at 5.5 per cent.
However, JP Morgan Australia chief economist Stephen Walters warned the government might be relying on overly optimistic forecasts.
"They are basically just crossing their fingers and hoping the growth materialises," he said.
Mr Walters said that, based on JP Morgan's own forecasts, which include GDP growth of 2.7 per cent for the year, the government would fail to achieve the surplus.
"They are going to do whatever they think they need to do to get there but we think it is unlikely they are going to have a surplus this year."
As part of the cost savings measures, the government announced a cut to the baby bonus paid to parents for their second and subsequent children to $3,000, from $5,000.
Larger companies will also be forced to hand over Pay As You Go tax instalments on a monthly, rather than quarterly, basis.
Westpac chief economist Bill Evans said while it was difficult to assess the effectiveness of some of the measures, the government's forecast appeared to be reasonable.
"There are some assumptions in there about policies, that I don't think people like us have any way of estimating whether they are correct or not," he said.
"But the ones that we can assess look reasonable."
He said the additional savings could add to the pressure on the Reserve Bank of Australia (RBA) to cut interest rates again in November.
"Any additional contraction in fiscal policy just makes the case for another rate cut stronger," he said.
Futures markets are currently forecasting an 85 per cent chance the RBA will cut the cash rate to 3.0 per cent in November, from 3.25 per cent.
However, CommSec chief economist Craig James warned the effort to return to surplus could have a negative effect on the economy and undermine the budget's forecasts.
"We question the preoccupation of achieving a budget surplus at all costs," he said.
"While the goal is laudable, if consumers and businesses remain reluctant to spend or borrow in response to rate cuts, then the fiscal tightening may have unintended negative effects of the economy and on the very task of achieving a surplus."
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