The Gillard government will not go ahead with a family benefits boost that would have provided a maximum of $600 extra a year to eligible Australian families, as it signals that the budget faces a $17 billion shortfall.
On Tuesday, Finance Minister Penny Wong confirmed that the government was ''not in a position to proceed'' with an increase to Family Tax Benefit Part A that was due to start on July 1.
In last year's budget, Labor pledged about $1.8 billion over four years to increase the rate of Family Tax Benefit Part A, as part of its package to spread ''the benefits of the mining boom''.
In a measure linked to the mining tax - that was never legislated - more than 1.1 million families were to receive an increase to the maximum rate of FTB-A of $300 a year for those with one child and $600 a year for those with two or more children.
A promised increase to the base rate of FTB-A would have seen an extra $100 a year for families with one child and $200 a year for families with two or more children for around 460,000 families.
Senator Wong said on Tuesday morning that on top of the revenue hit in 2012-13, the government anticipated revenue hits across the forward estimates.
''What we are seeing is the dollar remaining stubbornly high, but the terms of trade - the prices Australia gets for the things it sells to the rest of the world - are falling,'' Senator Wong told ABC TV.
''That set of circumstances has really hit business profitability and we are seeing, therefore, a very significant reduction in anticipated revenue for government.''
Senator Wong said that the government had made a ''difficult but responsible'' decision not to proceed with the boost to the family benefits payment. ''[It's] obviously a decision we would have preferred not to have made, but a decision that is driven by the need to act responsibly in the face of falling revenue,'' she said.
Senator Wong added in terms of what Australian families were currently receiving, nobody ''loses anything'' from the decision.
In last year's budget, the government predicted that the mining tax would bring in $3 billion in its first year of operation, but later downgraded the forecast to $2 billion.
The tax has raised $126 million in its first six months, with a Parliamentary Budget Office forecast predicting this week that the tax would raise $800 million for the entire year.
On Tuesday, shadow treasurer Joe Hockey tweeted that the federal budget, due to be handed down next Tuesday, was in ''chaos''. ''Wong says revenue write downs now $17bn. Last week Gillard said $12bn. Week before Swan said $7bn. Budget in complete chaos!!''
Opposition Leader Tony Abbott said the government was ''constantly getting it wrong'' when it came to the budget.
''Every other day now the government is further estimating the extent of revenue losses. And every other day the government is rewriting commitments that were cast in stone just a few weeks or months ago,'' he told reporters.
The Australian Council of Social Service strongly opposed the Gillard government's decision not to go ahead with the boost. ACOSS chief executive Cassandra Goldie said her organisation understood the pressures on the budget, but argued there were other areas where savings could be found.
''The family payment system is the bulwark against child poverty in Australia,'' Dr Goldie said.