Treasurer Joe Hockey has welcomed moves by BHP Billiton to curb iron-ore production, which has boosted prices and in turn the prospect of a better budget outcome.
The federal government is faced with having to write off billions of dollars in revenue on the back of plunging iron ore prices, which have collapsed from $US120 per tonne in 2013 to below $US60 a tonne.
Iron ore prices jumped on Wednesday - rising 5.9 per cent to $US54.04 - after BHP Billiton said it would defer a $600 million improvement program at its Port Hedland bulk export terminal.
The treasurer is closely monitoring iron-ore prices as he prepares to hand down his second budget in less than three weeks.
"Common sense must prevail. I'm glad the producers in Australia are taking a more reasonable approach to production levels," Mr Hockey said in Sydney on Thursday.
"Obviously. the price of iron ore is going to have an impact on our budget and we expect our producers to behave collectively in a mature fashion."
Mr Hockey has previously warned the government was contemplating a price-per-tonne of just $35, which could translate into a revenue write-off of up to $25 billion over the next four years.
In December, the mid-year budget review forecast the deficit for 2015/16 would be $31.2 billion.
Mr Hockey said on Thursday said the Abbott government was committed to returning the budget to surplus "as soon as possible".
"There is absolutely no doubt about our medium and long-term commitment to get the budget back to surplus with structural reforms in education, in health, and in welfare that are going to ensure we get to the point where we live within our means," he said.
But he insists $4 billion in cuts to school and hospital funding for the states and territories are locked in, despite Prime Minister Tony Abbott agreeing discuss the issue at a leaders' retreat in July.
"Labor made commitments over the long term on schools and hospitals that were never paid for," Mr Hockey said.
"The position that we took to the last election and the position we took in the last budget stands."
Mr Abbott said last week following a Council of Australian Governments meeting in Canberra the issue would be dealt with as a priority at a mid-Winter retreat with state and territory leaders.
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