Australia's investment regime generally does not allow foreign investors to purchase existing homes and Prime Minister Tony Abbott has announced tougher penalties, including possible jail terms, for people who break the rules.

Under legislation to be introduced later this year, penalties will be increased to $127,500 or three years' imprisonment for individuals, and $637,500 for companies. The government wants the new regime in place by December 1.

But Treasurer Joe Hockey has announced a moratorium to encourage people who have made unlawful purchases to turn themselves in.

"Those foreign investors have until November 30 to come forward and self identify," he  said on Saturday. "They will be forced to sell their properties, but they will not be subject to criminal prosecution."

People who don't come forward will face the full force of the law, he said.

"If you do not come to us, we will come to you because eventually we will find those people that have engaged in unlawful acquisition of Australian real estate and we will prosecute you and we will be very hard about it."

The announcement came as Mr Abbott and Mr Hockey ramp up their preparations for their make-or-break second budget.

Mr Abbott said the budget would be "measured, responsible and fair" – but he wouldn't confirm a backflip on pension indexation.

"I want to assure people this is a budget that will be measured, responsible and fair," he told reporters in Sydney.

"It's a budget that will be good for jobs, growth and opportunity."

But as for specific budget announcements, people will have to wait until May 12, he said.

Reports say the government has decided to dump its deeply unpopular plan to reduce the rate of indexation for the age pension and will make the lost revenue by changing eligibility criteria for the part-pension.

Currently, aged pensions are indexed to whichever is higher out of inflation and male average weekly earnings. The government had wanted to index only to CPI, which is mostly lower, in a bid to save $23 billion over 10 years.

Dumping the plan will be as popular with Mr Abbott's backbench as it will with pensioners themselves. Coalition dissenters have been urging the Prime Minister to shed this final policy "barnacle" for months.

In that sense, the decision will help shore up Mr Abbott's leadership against further attack.

Labor's families spokeswoman, Jenny Macklin, said any changes to the part-pension would amount to another broken promise by Mr Abbott.

"Tony Abbott should come clean how many part-pensioners will be worse off by this latest attack and how many will be kicked off the pension altogether," she said. "Any part pensioner with assets is at risk of a pension cut under this new broken promise."

Mr Abbott has also moved to hosed down new rumours of a possible early double dissolution election.

"I should say it is my firm intention to deliver on the mandate that the public gave us and when the public elected us, they expected us to govern for three years and that is absolutely what we intend to do," he said.