The government was too ambitious in its budget last year and should have realised that sooner, Finance Minister Mathias Cormann says.
Senator Cormann said the government could have handled the proposed Medicare co-payment much better.
"There's no two ways about it. With the benefit of hindsight, in our first budget we were too ambitious. We bit off more than we could chew and we probably should have come to that conclusion more quickly. I totally accept that," he told Sky News.
Senator Cormann said the challenge was to ensure Medicare was strong and protected over the medium to long term and remained affordable and sustainable for taxpayers.
He said the Medicare co-payment, dropped on Wednesday, would not be reinvigorated.
But the government would continue to work with the medical profession and other stakeholders to come up with a better way to put Medicare on a strong and sustainable trajectory.
Senator Cormann ruled out an increase to the Medicare levy as the practical effect would be to lift the top marginal tax rate to over 50 per cent.
He said government spending as a share of GDP was heading to more than 30 per cent.
"If we try to chase that spending growth trajectory with ever more new taxes, we would be hurting the economy. It would cost jobs. It would seriously put us into a vicious downward cycle," he said.
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