Federal Treasurer Wayne Swan has refused to say whether the government plans to slash private health insurance rebates in next week's budget.
However, Mr Swan said the government had some "hard choices" to make, to maintain jobs and put in place vital infrastructure while providing long-term savings.
The Australian newspaper reports the government aimed to save $1.9 billion by slashing the 30 per cent private health rebate for middle- and high-income earners.
The rebates will fall away on a sliding scale for individuals earning more than $74,000 a year and couples on more than $150,000 a year and will cut out altogether at $120,000 for singles and $240,000 for couples.
Mr Swan wouldn't confirm or deny any particular proposal set out in Friday's paper.
"What I can say to you is that I won't shirk, neither will the government shirk the hard choices, especially if that means making room for a commitment to pensioners and vital nation-building investments to support jobs," Mr Swan told ABC radio.
To do this, the money will have to come from somewhere, he said.
"That's why there are no easy choices in this budget and some decisions that the government takes will be unpopular but what we have to do is the right thing in the national economic interest."
However, the federal opposition says slashing the private health insurance rebate is a short-term policy with long-term pain.
"This is another broken promise from (Prime Minister) Kevin Rudd," opposition Treasury spokesman Joe Hockey told ABC Television.
It represented a cost shift from individuals and the federal government to state governments that placed "massive" increased pressure on already-stressed public hospitals.
"Quite frankly this is short-term policy that is going to have long-term pain."
The decision to hand out to taxpayers cash bonuses of up to $900 would soon "come home to roost", as taxes were increased on such things as cigarettes and beer, and rebates slashed.
"Why is it under Labor that we always end up with bigger debts and higher taxes?" Mr Hockey said.
Opposition health spokesman Peter Dutton has also weighed in on the matter, saying slashing the private health rebate will force up insurance premiums and place a heavy burden on public hospitals.
"This is a huge move by the Rudd government which is certainly a break of an election promise," Mr Dutton told ABC Radio.
"Repeatedly over the term of this government they've promised to preserve the incentives in private health insurance."
Mr Dutton said all 11 million Australians with private health insurance could expect to pay more for their premiums as a result of the change.
"If hundreds of thousands of people are driven out of private health insurance by the Rudd government, that will make it more expensive for those who remain on private health insurance," he said.
The reduced rebates would also force "hundreds of thousands of people" onto the public system.
People on waiting lists in public hospitals would now have to wait longer as the demands on public health services are going to increase, he said.
