Welfare out the window

Costello's 10th budget will push tens of thousands of welfare recipients into paid work under the theme of "responsible measures today, opportunities for tomorrow".

"At the moment we have hundreds of thousands of Australians of working age who have no obligation to look for work even though they are capable of it and that's going to change" Costello said.

Broadly based tax relief is expected to be part of the carrot-and-stick plan to lift Australia's workforce participation rate to help tackle the future cost of the ageing population.

Carrots will include a tax relief package for high income earners worth at least hundreds of millions of dollars.


Sticks will include forcing single mothers to look for work once their youngest child reaches school age and a tougher work test for new disability support pension applicants.

Unemployed people risk longer suspensions of their dole if they fail to meet job search obligations. Those who do not turn up for a job interview would have their payments suspended immediately for two days, and their income support would be cut off for eight weeks if they missed three appointments in a year.

Centrelink would be pushed to suspend payments more often when a Job Network provider reported that someone had failed to turn up. Exemptions would be made for people with disabilities such as episodic mental illnesses.

Mr Costello hopes his 10th - and possibly last - budget will be seen as a bold reform plan that will rein in the nation's skyrocketing welfare bill and put downward pressure on interest rates.

But economists have warned that further tax cuts could increase spending and inflation, encouraging the Reserve Bank to lift interest rates.