Big cuts for unemployed and sick people, students, pensioners and families – but few measures that will quickly 'repair' the budget

The Abbott government’s first budget inflicts deep pain on unemployed and sick people, students, pensioners and families but does little to strengthen the economy or quickly “repair” the budget.

As leaked, it hits around 400,000 high-income earners with a three-year $3.1bn deficit levy and reaps a further $2.2bn by increasing petrol taxes in line with inflation.

But the budget-night surprise was that much of the cash raised from cuts to benefits and tax rises is spent on the Coalition’s own priorities rather than on improving the budget bottom line, including a new $20bn medical research fund – to become the biggest in the world within six years – the Direct Action greenhouse emissions reduction fund and about $5bn in new roads funding.

Although the treasurer, Joe Hockey, said the aim of the pain was “budget repair” – a national effort in which Australians “fix the budget together” – he is not promising a surplus in the four years of the forward estimates, with a deficit of $2.8bn forecast for 2017-18: unemployment remains at 6% or higher for the next three, growth is almost unchanged and business investment is weakening.

Hockey conceded the government “could have gone harder” in paying down deficits, but said “it would have detracted from growth”.

He denied his budget was the start of an “age of austerity”, saying he was in fact ushering in a new “age of opportunity”.

But for unemployed people under 30, this “age of opportunity” means waiting six months to get the dole, then receiving a payment only for six months and only if they work for it, and then losing the payment again for the next six months, during which a potential employers may get a wage subsidy.

For sick people it means paying $7 for every visit to the doctor and every medical test – $5 of which will be invested in a new “medical research future fund” and $2 will be kept by the doctor or test provider, in part to help them waive the payment in cases of “genuine need”. The co-payment will stop after 10 medical payments for concession holders and children. The co-payment for medicines will also increase by $5.

Hockey said the aim of the health changes was to “get the nation to invest in its own healthcare … and for people to accept personal responsibility for their own physical health.”

For students the new era means paying back a greater proportion of the cost of a degree, and this cost potentially rising as the higher education sector is deregulated – although government loans will be available for a wider range of courses.

For single-income families it means losing up to $73 per week a child in family tax benefit B payments once the bread winner earns more than $100,000 (rather than the current $150,000) and losing the payment when the youngest child turns six, rather than 18.

And government payments including family tax benefit, Medicare rebates and private health insurance rebates will be frozen, as will eligibility thresholds for receiving them – instead of rising in line with inflation – an idea Tony Abbott derided as “class warfare” when it was tentatively tried by the former Labor government.

Many disability pensioners under 35 will be “reassessed” and those with “some work capacity” forced to seek employment.

But clearly hesitant to break an election promise that no changes would be made to the pension, the government has delayed paring back aged pensions until after the next federal poll.

It is then proposing major changes – linking pension increases to inflation rather than average earnings, which will see their buying power decline over time compared with current arrangements, freezing the threshold for assets and income a pensioner can hold even though their value will rise over time, reducing the amount a pensioner can earn from their assets.

The pension age will rise to 70 by 2035, but addressing criticism that older people often find it hard to get a job the government is offering a new wage subsidy to employers taking on a worker over 50 who has been unemployed for more than six months.

Hockey said these sweeping welfare cuts were “just the start, not the end of the story”.

Despite clear promises before the election that the government would not raise taxes, nor cut education or health or pensions, or the ABC – all of which have now been cut – Hockey continued to claim the government was not breaking its word because, overall, his government was collecting less tax than the former government did.

And he said the budget was “building in” in personal tax cuts in future years and the 2% deficit levy on earnings over $180,000 would definitely end in three years.

Asked why lower income earners were bearing “pain” that escalated over time, while high-income earners’ main budget burden was temporary, Hockey said “everyone is making a contribution … and as far as I am aware higher income earners pay the $7 co-payment as well”.

Business is also suffering little from the budget razor – with smaller businesses receiving the promised 1.5% company tax cut and industry “welfare” programs being trimmed by $845m.

Hockey said companies could not be asked to pay more because Australia was competing with very low corporate tax rates in countries such as Britain.

The budget reduced hospital funding to the states by $1.5bn, and made deep cuts to payments to the states for education, paving the way for the tax reform debate to discuss increasing state revenue through broadening or increasing the goods and services tax.

The budget also cut the federal public service by 2,000 more jobs than the 14,500 already in line to go.

Contrary to some reports, the lifelong “gold travel pass” for former politicians has not been abolished but rather just trimmed – with spouses no longer eligible for free travel and some restrictions on the number of trips that can be claimed. All up the changes save $5m over five years.

The government is cutting overall spending, but relatively slowly – from 25.3% of GDP to 24.8% next year, 24.7% in 2016-17 and rising to 24.8% again in 2017-18. By comparison Peter Costello’s first budget was much more savage, cutting government spending from 25.1% to 23.9% of GDP.

Speaking to the ABC after his budget speech Hockey conceded that the government had increased some taxes, but he insisted the budget was fair because it was always individuals who had to do “heavy lifting”.

Many community groups disagreed. Ged Kearney, president of the Australian Council of Trade Unions, said the budget marked “the end of a fair for Australia”.

It was a “brutal attack on what we would call our safety net … it is something that we’ve never seen before,” she said.

“Universal healthcare, our Medicare system, is essentially gone. People will pay more for education. Pensioners will have their pensions cut, they will have to work for longer, we will see a drastic reduction in public-sector jobs and public services. What this budget shows is this government’s vision for this country is a harsher, less equal Australia,” she said.

But some of the measures appear unlikely to pass the Senate.

Labor, the Greens and the Palmer United party all oppose the $7 Medicare co-payment, meaning it won’t pass the upper house unless one of those parties changes its mind. The same three parties have expressed deep concerns about changes to the pension, so its future is also uncertain.

The shadow treasurer, Chris Bowen, said the budget was an “unconscionable” attack on lower- and middle-income earners and Labor’s “first priorities” in opposing budget measures would be the Medicare co-payment. He did not rule out support for the deficit levy, saying Labor’s criticism of early leaks about the plan had forced the government to increase the income levels it hits to $180,000.

Clive Palmer said his senators would vote against the deficit levy and the $7 Medicare co-contribution, saying in a statement that he saw "no justification" for either measure.

In an interview on Sky News, Palmer said the government had overblown its rhetoric about the country’s debt levels. He did not spell out a clear position on any of the other major budget measures, though he said he did not want to see "gridlock" in parliament.

The Australian Chamber of Commerce and Industry said the government had brought down “the budget we had to have”, saying it would deliver “long-term gains.”

But the Business Council of Australia was lukewarm in its reaction, saying the government had made a “solid start” and that it was “very concerned about the risk that savings are falling too heavily on some families and young people trying to find work”.

“It is important that we lift our game now in skills development, improvements to job services programs and more flexible workforce arrangements,” its chief executive, Jennifer Westacott, said.

She said she was also concerned that the “achievement of a substantial surplus in 2023-24 appeared to be heavily reliant on reduced growth in health and education payments to the states. Achieving a credible return to a sustainable surplus requires the government to commit to vastly improved policy design, process, implementation and evaluation.”