Australia’s Treasurer Joe Hockey (left) speaks at a press conference ahead of delivering his budget speech to parliament with Finance Minister Mathias Cormannin in Canberra yesterday. Hockey called on all Australians to help mend the country’s finances, declaring the ‘age of entitlement’ over as he announced a temporary tax on high income earners and plans to lift the pension age to 70.

Reuters/Canberra

Australia’s conservative government yesterday released a politically contentious federal budget packed with deregulation and tough spending cuts that it offers as a roadmap for returning to surplus within a decade.

The 2014/15 Federal Budget presents Prime Minister Tony Abbott and Treasurer Joe Hockey’s blueprint for tackling what they call unsustainable deficits forecast at A$29.8bn ($27.9bn) next year and totaling A$60bn over the next four years.

But the proposals would signal perhaps the most radical reshaping of Australia’s social safety network in its modern history through broad structural reforms to the welfare, healthcare, higher education and pension systems.

And with 16,500 public sector employees set to lose their jobs, the rolling back of universal healthcare and deregulation of university fees, rises to the pension age and fresh income tax hikes, it could prove politically perilous.

The Australian dollar barely reacted to the budget, given that many of the details have been leaked over the past few weeks. It was last at $0.9340, a little softer on the day after disappointing economic news out of China.

“We know that for some in the community, this budget will not be easy. But this budget is not about self-interest. This budget is about the national interest,” Treasurer Joe Hockey said in his Budget Speech.  “Doing nothing is not an option. The days of borrow and spend must come to an end.”

Australia has fared better than most developed nations in the past decade, having avoided the implosions of the finance and housing sectors seen in the US and Europe, while Chinese demand for resources fuelled a boom in its terms of trade.

But having gone into the 2008 global financial crisis with virtually no debt, latest projections show Australian deficits continuing, with net debt set to rise to 14.6% of GDP by 2016/17, the highest in about 20 years.

Still, Australia’s debt pales in comparison to most developed nations, spurring criticism that many of the mooted measures are unnecessary and might damage the AAA-rated economy.

Government debt in the US and eurozone account for more than 100% of GDP, according to OECD figures.

While Australia’s problems may be the envy of many of its rich-world peers, the government argues that 22 years of unbroken economic growth has been squandered on a bloated bureaucracy and tax breaks for the wealthy rather than investing in infrastructure now so badly needed in many regions.

The budget forecasts deficits to shrink to A$2.8bn or 0.2% of GDP by 2017/18, which if accomplished would indeed represent a radical shrinking of the deficit from almost A$50bn in the current year.

Abbott campaigned on ending “the age of entitlement” that he argues has created an unsustainable spending path that would leave Australia vulnerable to external shocks from top trading partner China, for example, and to structural changes such as an ageing population.

Among the widely-flagged proposals, Australia’s pension age will rise to 70 by 2035 and eligibility for pensions and other welfare payments will also be tightened.

On healthcare, a A$7 fee for all doctor’s visits will be introduced from July of next year, while at the same time decreasing government subsidies for prescription medication.

Those savings will be invested in a A$20bn Medical Research Future Fund, which the government says will be the largest such programme in the world within a decade.

The changes mark the biggest shift since the introduction of universal healthcare and puts Australia in the unusual position of moving away from universal coverage even as the rest of the world, including the US, has moved to provide it.

Students will also be facing big changes from January 2016, as government caps on tuition fees for higher education will be removed while the average government contribution towards course fees will be slashed by about 20%.

Although the healthcare measures will primarily be felt by low-income Australians, the budget is asking the wealthy to contribute through a 2 percentage point tax rate hike on earnings of over A$180,000 per year for three years.

The foreign aid budget also came in for a major hit, with aid groups and opposition politicians blasting a proposed cut of A$7.6bn over the next five years.

“The Government has broken its better-than-nothing promise to marginally increase Australia’s aid budget, announcing the latest in an onslaught of successive cuts to our aid program,” Helen Szoke, chief executive of Oxfam, said in a statement.

At the same time as the government is asking taxpayers to shoulder more of the burden, the budget committed to a previously-flagged 1.5 percentage point cut in the corporate tax rate and unveiled an A$11bn infrastructure package sure to please business.

While the government has a clear majority in the House of Representatives, the upper-house Senate could yet provide significant hurdles to more contentious issues including the repeal of carbon and mining taxes, welfare cuts and the temporary deficit levy.