Tony Abbott says the government must revisit the work begun in the 2014 budget to find savings, while seeking to lower taxes.
The former prime minister on Tuesday made what coalition colleagues have described as his first major "policy intervention" in the party room since he was ousted from the leadership in September by Malcolm Turnbull.
Mr Abbott told colleagues the government's thinking must be based on two facts.
"We don't have a revenue problem, we have a spending problem," he said.
"And you can't reduce taxes by raising taxes."
Mr Abbott said finding savings would be difficult, as the coalition found in 2014, but "we have to revisit that task".
This could be achieved with Mr Turnbull's formidable communication skills.
Mr Turnbull told the meeting, in praising Mr Abbott, that leadership was about both "continuity and change".
"Scott Morrison and I are completing the process of looking right across the board (in terms of tax and budget policy) which you and Joe Hockey started," Mr Turnbull said in response to his predecessor.
"We are continuing the process which you so openly and courageously began."
An MP told AAP the former prime minister's words were "very well rehearsed" and signalled a renewed push to revisit the "spirit" of what was achieved in the 2014 budget.
Treasurer Scott Morrison gave a sobering assessment of the government's tax options.
"When it comes to tax policy we are dancing on the top of a pin head," Mr Morrison said.
"We have very few options. There is no burden-free decision in the tax debate.
"If you choose not to act you will nevertheless be acting by default and increasing the income tax rate through bracket creep."
Tax reductions would have to come from another tax because any budget spending reductions would have to go to deficit reduction.
The government had so far saved $80 billion over two years and would continue to look for savings, but had added $70 billion to spending putting the budget "marginally ahead".
One MP told the meeting the government should at least look at negative gearing "if there is an inequity" in the system.
But two others said such a move would undermine the coalition's attack on Labor's policy.
Mr Turnbull has promised to release details of the tax policy before the May budget.
Mr Shorten told reporters that Mr Turnbull was shrinking into the leadership.
"Tony Abbott's got up and said it's time to show leadership on taxation and economy," Mr Shorten said.
"Wasn't that the case Malcolm Turnbull used to justify rolling Tony Abbott?"
Mr Abbott has also written a 4000-word essay for the conservative journal Quadrant in which he argues his achievements would "stand the test of time".
