Treasurer Scott Morrison has confirmed the budget is set to include income tax cuts, declaring the government will deliver “tax relief to put more money back in the pockets of middle to lower income Australians”.

As reports emerged the long-mooted plan would start small and be phased in over 10 years, the Treasurer assured a Sydney audience of economists on Thursday that the cuts would be “measured and targeted”.

“Let me confirm that in this year’s budget we will be delivering tax relief to put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures,” he said.

Mr Morrison said middle to lower income families would be the priority because, although the economy was improving, “many Australians have been doing it tough and many are yet to experience the benefits of that growth”.

“By prioritising these households with tax relief and not hitting those who are already carrying a significant tax burden, we believe we are getting the balance right,” he said.

Mr Morrison was forced last week to lower expectations after Deputy Prime Minister Michael McCormack said the Treasurer at Budget time would be akin to Santa Claus delivering “goodies”.

“We will be targeted and we will be measured. Action taken will be part of a broader plan,” Mr Morrison said.

And we will deliver tax relief in the most efficient and affordable way. So expectations should be conditioned to these parameters.”

Shadow Treasurer Chris Bowen said the opposition would wait for details on budget night but was well placed to respond to the announcement of income tax cuts.

Labor has built up a pre-election war chest by announcing revenue-raising measures such as changes to family trusts, negative gearing and dividend imputation.

Also on Thursday, Mr Morrison confirmed the government was ditching its policy to hike the Medicare levy, saying better-than-expected tax receipts meant the increase was no longer needed to fund the National Disability Insurance Scheme.

In response to the government’s backflip, Mr Bowen revealed the opposition would drop its “compromise” policy to increase the Medicare Levy on those earning more than $87,000 a year.

Labor opposed the full tax increase, arguing it had already fully-funded the scheme while in government.

“The government said that NDIS would be unfunded without this tax rise,” Mr Bowen said. 

Shadow Treasurer Chris Bowen says Labor will wait and see on tax cuts. Photo: AAP

“Now, what would have happened if Labor had accepted the government’s arguments? If Labor had accepted this tax rise? It would now be the law of the land.”

However, Mr Bowen confirmed the opposition would keep its plan to reintroduce a 2 per cent deficit levy on those earning more than $180,000 a year.

Paralympian and disability rights advocate Kurt Fearnley responded angrily to the news, saying the Medicare levy increase had provided certainty for the scheme.

“We continue to play politics and kick the can down the road. This move will not go quietly,” Mr Fearnley said.

Australian Council of Social Service chief executive Cassandra Goldie said the government’s decision was concerning.

‘’ACOSS is disappointed the government has dropped its Medicare Levy increase to help fund the NDIS,” Ms Goldie said.

“Everyone who can afford to do so should contribute to essential services like the NDIS, and securing the revenue to guarantee essential services like the NDIS should be a bipartisan commitment. Unfortunately that didn’t happen.

“The decision to drop the levy increase reinforces growing concerns about the quality and certainty of services people receive from the NDIS.”