A DECISION made in May to spend billions of dollars held in reserve could prevent the nation going into deficit, senior Government figures say.

The budget is hovering just above the red after the $15.2 billion in increased funding for the states over five years, announced at the weekend, further eroded the slim surpluses forecast for this and future financial years.

But the Government could keep the budget in the black, or limit the size of any deficit, by spending the $5.8 billion estimated to be held in the contingency reserve, an item buried in the budget papers. None of the reserve will be touched this financial year but it has been earmarked to be spent next financial year, primarily on infrastructure.

Next year is considered far more likely to plunge into deficit. The forecast surplus is down to $1.8 billion and the Government has committed to boosting pensions, regardless of economic circumstances.

The contingency reserve is money put away to cover cost blow-outs and other unforeseen expenses. It is budgeted as already spent, so using it would not affect the bottom line.

The politics of going into deficit continued to dominate Parliament yesterday. The Opposition attacked the Government for its computers in schools program blowing out from an original $1 billion to $2 billion.

The Prime Minister, Kevin Rudd, said the extra expense was worth it "to get this done".

"Put your hand up those of you who don't want computers delivered to your classrooms," he dared Opposition MPs.

The Treasurer, Wayne Swan, stressed a deficit was "not necessary now" but it would be irresponsible to rule one out.

The shadow treasurer, Julie Bishop, fended off unsourced internal attacks on her performance yesterday to try to keep the pressure on the Government.

She said there was no need to go into deficit, but at the same time she advocated tax cuts, especially for small business, to help generate employment.