Treasurer Scott Morrison will this week reveal new budget cuts worth $5 billion over four years.
Every dollar in new spending announced since the May budget - which includes Prime Minister Malcolm Turnbull's $1.1 billion innovation strategy and the $700 million cost of resettling 12,000 Syrian refugees - will be offset through savings, Mr Morrison insisted on Sunday.
"The budget rules state that any new spending must be fully offset," he said.
"There have been a series of measures since the budget that require the offset rule to be applied such as the commitment to accept 12,000 refugee and humanitarian entrants, the reversal of the bank deposits tax as well as additional funding for Roads to Recovery".
Deloitte Access Economics has tallied all the new spending since May and found $5 billion has been added over the four-year forward estimates horizon.
Extra spending, Deloitte found, would cost the budget $1.74 billion in 2015-16 and $1.56 billion in 2016-17.
Mr Morrison will deliver his first Mid-Year Economic and Fiscal Outlook statement on Tuesday and he has made it a priority to reduce the ratio of government spending to GDP from its current peak at 26.2 per cent. In May, the ratio was 25.9 per cent.
The Treasurer's task of finding spending offsets will be made more difficult by a sharply worse picture on the revenue side of the budget, which has been hammered by plunging commodity prices and stagnant wage growth.
Leading economists believe the government will be forced to reveal a worsening of the budget deficit of between $33 billion and $39 billion over the next four years.
The grim picture was a focus of Mr Turnbull's talks with state and territory leaders on Friday. The Council of Australian Governments' joint communique warned of "emerging budgetary pressures across all levels of government, particularly in the health sector".
On Sunday, Mr Morrison said MYEFO update key forecasts to present a "realistic outlook for economic conditions moving forward".
"As was demonstrated by the recent National Accounts data, our economy is transitioning from resource investment led growth towards broader based growth," he said.
"Part of this transition involves dealing with the challenges of lower commodity prices and a declining terms of trade from their historic peaks in the wake of the mining investment boom.
"The government will continue to restore the budget by controlling expenditure and supporting policies that grow the economy. The budget will not be restored by increasing the overall tax burden on Australians."
Shadow Treasurer Chris Bowen predicted on Sunday that the mid-year update would be a "damning picture" and he challenged Mr Morrison's view that the federal government has a spending problem, not a revenue problem.
"For the Treasurer to claim that he can return the budget to balance without dealing with revenue is just plain wrong," Mr Bowen said.