The realisation that the budget is going backwards has increased despair within the Coalition. MPs are angry that the government's political fortunes were eviscerated by the 2014 budget for no great policy achievement.

The decision to go easy in this year's budget is driven by not wanting to exacerbate the considerable political damage caused by Mr Abbott's broken promises and the perceived unfairness of last year's budget.

This has presented new problems for Mr Abbott, with the economic dries in his party uneasy at what is seen to be a retreat. Last week leadership rival Malcolm Turnbull warned in a pointed speech that governments that failed on economic reform were usually thrown out office.

Mr Turnbull spruiked himself as somebody who has the ability to persuade the public of the need for tough measures.

At this point, it appears the government may hold on to around $8 billion of the savings it has promised since it came to office, and the budget bottom line will be improved beyond the budget forecasts by politically unpopular cuts to hospitals and schools of $80 billion that were imposed unilaterally on the states in the May budget.

The government's economic credentials have faced a further battering in the wake of Mr Abbott's assertion on Wednesday that "a ratio of debt to GDP at about 50 or 60 per cent is a pretty good result looking around the world".

Labor took Mr Abbott to task over this in Parliament, by reminding him of the alarmist rhetoric he used against the former government when debt hit 13 per cent of GDP.

Mr Abbott said he was contending that the current trajectory, which forecasts the budget coming close to surplus in five years before again declining, and net debt hitting 60 per cent of GDP in 40 years. He said that was not his objective but was a better trajectory than the government inherited.


Despite putting further budget reforms on hold, Mr Abbott said "a solid foundation has been laid".

Treasurer Joe Hockey said the progress thus far was "a significant achievement but there's much more to be done".

The $80 billion deterioration is based on the change between the Pre-Election Fiscal Outlook, prepared by the secretaries of the Departments of Treasury and Finance in 2013, and the 2014 mid-year review of the budget released late last year. While the PEFO did not include a forecast for 2017-18, the downward revisions of all other years since then suggest that there would also be a deterioration in this year.

The 2014-15 deficit has blown out from a forecast of $24 billion less than two years ago to over $40 billion.

If the starting point for the comparison is the 2013 mid-year review of the budget – which Mr Hockey said drew a line under the sand of Labor policies and controversially included a $9 billion transfer to the Reserve Bank – the deterioration is still around $30 billion over the four years of the budget forecasts.

The budget bottom line has been hit by slumping revenues as commodity prices have fallen, slicing $37.3 billion from the bottom line over four years since PEFO.

The government has made spending cuts worth a total of $28 billion since it came to office. However, more than $8 billion of these cuts – including the Medicare co-payment and higher education cuts – have had to be abandoned in the face of fierce resistance from voters and the Senate.

Further measures, major welfare cuts worth around $12 billion, seem almost certain to face the same fate. A $1.2 billion cut to the pharmaceutical benefits scheme is also in trouble and the reintroduction of fuel excise, worth $2.2 billion, faces an uncertain fate when its status as a regulation is brought back before the Senate.