Pre-budget announcements of thousands of public service sackings, departmental shut-downs and mergers have prompted political and business leaders to warn that Canberra faces a business slowdown, higher unemployment and falling house prices.

The merging and abolition of more than 70 government agencies and the slashing of 16,000 public service jobs nationally – with the potential for more than 6000 of them in Canberra – was condemned on Monday as an ideological push for smaller government.

But the Abbott government defended its "tough decisions" with Public Service Minister Eric Abetz saying public service salaries were being paid for with money borrowed from overseas.

As the city digested the news on Monday of the full extent of the cuts it faced in the budget, government departments buzzed with rumours of mass sackings, with public service bosses unable to provide any concrete information to re-assure their workers.

Canberra Labor MP Gai Brodtmann said the capital was frightened and that it faced a "black day" on Tuesday.

Confusion reigned at six of the city's national cultural institutions after it was revealed that their back-office functions would be merged but senior managers were unable to give any details on the plan.

Real estate experts warned that both the residential and commercial sectors were braced for a tough time and Ms Brodtmann said her constituents had been telling her they were frightened.

"Tuesday is going to be a black day for Canberra," she said. "It’s going to have a huge affect on Canberra in terms of jobs, not just in the public sector but in the private sector, it’s going to have a huge effect on the economy, a huge effect on house process and a huge effect on the capital region."

"Tomorrow night is going to be dreadful for Canberra. Canberrans are bracing themselves, they are frightened about what’s going to happen because of this budget."

Senator Eric Abetz's office issued a statement on Monday, saying the government was actually protecting the long-term survival of the public service.

"The future of the public service can only be guaranteed with a viable budgetary position," Mr Abetz said. "We cannot keep borrowing from overseas for recurrent expenditure, so tough decisions need to be made today so even tougher decisions won’t have to be taken in a few years’ time."

Parliamentary Library research shows Canberra house prices fell three years in a row in the mid to late 1990s, gross state product dropped to almost 0 per cent, and total bankruptcies doubled within a few years of cuts put in place when John Howard reduced the bureaucracy in Canberra by 15,000 after his election in 1996.

The territory was home to 40 per cent of federal public servants and, if the cuts were proportional, commercial real estate executive Andrew Balzanelli said, more than 6000 jobs cuts in Canberra would put another 96,000 square metres of vacant office space onto the market, which already had 12 per cent of office space unused, within a few years.

Mr Balzanelli said this would leave about 15 per cent of the city's office space sitting empty and there would be further vacant space "hidden" from view as departments were pockmarked by abandoned desks.

"Canberra is still one of the cheapest office accommodation markets in the country – if they wanted to be saving money on office rent they'd be closing offices in Sydney and Melbourne, which can be up to double the cost," Mr Balzanelli said.

Paul Powderly from Colliers International in Canberra said much of the hidden vacant office space may be carried by the Commonwealth which in numerous cases has recently signed 15-year leases.

Mr Powderly expected the residential home market – in which prices have stopped growing – to plateau in the short term.

But he said he did not envisage a huge drop in values because many in the public service were close to retirement and hoped to receive redundancy payouts to buy properties.