Australian Prime Minister Julia Gillard's survival increasingly hangs on her ability to sell next week's Budget as polls plunge to new lows and leadership speculation again begins to rumble.

Gillard has already brought forward a new national disability insurance scheme by a year in a bid to help the Government wade out of a deepening mire.

Next Tuesday, Treasurer Wayne Swan will present a Budget built heavily around a promised surplus - but one that will be achieved through huge cost-cutting against the advice of many business and community organisations.

Gillard was handed some good news yesterday with the Reserve Bank's decision to cut the official cash rate by 50 basis points to 3.75 per cent, its lowest level in almost 2 years.

But the Government has failed to gain much traction from earlier cuts because the major banks have either refused to pass the cuts on, or have increased their own customers' borrowing costs.

Opposition leader Tony Abbott welcomed the Reserve Bank's decision, but said the rate cut was an "indication of economic weakness".

The latest polls have Abbott firmly in the political driving seat, with his own personal unpopularity vastly overshadowed by the Opposition's crushing lead.

A Newspoll in the Australian yesterday said Labor's primary vote had collapsed to 27 per cent, only one point above its worst result ever and overwhelmed by the Coalition's 51 per cent.

Gillard's one poll advantage - her earlier lead as preferred prime minister - has also vanished: Abbott has eclipsed her by 41-36 per cent.

Gillard, suffering from the legacy of her coup against predecessor Kevin Rudd and a run of broken promises, has stumbled over every chance she has had to regain ground since the start of the year.

Her victory in Rudd's February leadership challenge has crumbled with successive disasters, capped in the past week by turncoat Liberal MP Peter Slipper's indefinite departure from the Speaker's chair because of criminal allegations of fraud and civil claims of sexual harassment, and the suspension of Labor MP Craig Thomson.

While senior ministers have been pounding the airwaves in defence of Gillard, Abbott has been striking home with demands for an early election to rid the country of a "desperate Government in crisis", led by a Prime Minister who time and again had shown "spectacularly bad judgment".

A new momentum may be starting to gain ground as analysts and commentators sniff the political winds.

Press Gallery doyen Michelle Grattan wrote in the Age of a "nakedly expedient" Prime Minister: "Julia Gillard should consider falling on her sword for the good of the Labor Party, because she can no longer present an even slightly credible face at the election."

The Sydney Morning Herald said factional bosses and MPs had warned that Gillard could no longer count on the support that defeated Rudd, and momentum for a new challenge would build quickly if she failed to sell the Budget to voters.

By Greg Ansley Email Greg