Dropping the budget surplus vow was "betrayal of public trust," as insisted by the Coalition but Treasurer Wayne Swan maintained that embracing economic reality is the best way to handle the domestic setting.

Facing write downs of close to $4 billion as of October 2012, Mr Swan admitted on Thursday that the $1.1 billion surplus pledged by the Labor government next year will not be realised after all.

He admitted that dipping business profits pulled down the federal government's company tax receipts during Q1 of the ongoing fiscal year. Data provided by the Finance Department showed that tax receipts as of October in the financial year 2012-13 reached $111.6 billion, falling short by $3.9 billion, media reports said.

With that environment, Mr Swan explained that sticking with the earlier plan of delivering savings on the federal budget following a deficit of more than $40 billion in the previous financial year will hamper government's growth plans.

"Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13," Mr Swan said on Thursday.

"Given the hole in the revenue this year, it would simply be irresponsible to make very significant cuts now," the acting prime minister was reported by the Australian Associated Press (AAP) as saying on Friday, defending his decision on Thursday.

Foremost of his concern at the moment and over the long-term is to protect Australian jobs and to maintain a local setting that encourages growth amidst the slow down seen not only in the country but also on key economies around the world, Mr Swan said.

"Our job is to get these big economic calls right, and that's the call that we've made," the treasurer said in an interview with Nine Network today.

However, the Coalition is not ready to buy Mr Swan's insistence that federal revenue is dwindling and further tightening of the budget will only hurt the economy.

"The Labor Party is getting the revenue in, the problem is they are wasting money," Shadow Treasurer Joe Hockey was reported by AAP as saying.

He suggested that it must have been humiliating on Mr Swan's part to finally concede that the promised surplus stands on faulty economic policies.

"If you want to reduce your exposure to the capital market volatility in the rest of the world, if you want to reduce your exposure to Europe and to the United States, then you know what you live within your means then you don't rely on anybody anyone," Mr Hockey said.

But economists welcomed Labor's decision. To begin with, the government was aiming right in trying hard to push for a surplus, ANZ analyst Ivan Colhoun told Fairfax Media, but it erred on the timing.

"In fact, with the world and Australia slowing down and the terms of trade coming off, I think it was actually silly to try and target a surplus this year," Mr Colhoun stressed.

Independent MP Rob Oakeshott is also supportive of the move, adding that the Gillard Government should begin reconfiguring its spending plans and unleash stimulus support for the economy.

"I do think the conversation in the first quarter next year will be one about whether to stimulate the economy with a third round of stimulus," Mr Oakeshott told ABC.

Meanwhile, regardless of the bold move now adapted by Mr Swan and the government, it is inevitable for Labor to pay the price of the promise it adamantly peddled over the past two years, wrote David Crowe of The Australian.

"Labor took the risk of committing to a surplus at one of the most volatile times in world economic history. It then pinned its hopes on a mining tax that was contingent on strong iron ore and coal prices, another huge source of uncertainty," Mr Crowe said.

"The time has come to pay for the promise," added The Australian editor.

RELATED STORIES