B Day: Finance Minister Mathias Cormann at Parliament House.

B Day: Finance Minister Mathias Cormann at Parliament House. Photo: Alex Ellinghausen

Senior Liberals say the federal government is bracing for a backlash when voters see the full scale of cutbacks and broken promises in the budget.

The prediction is fuelling a febrile mood on the Coalition backbench and suggests the nation is in for a harsh budget aimed at driving the balance sheet back to the black more quickly than previously indicated – perhaps within as little as four to five years.

Federal Director of the Liberal Party: Brian Loughnane.

Federal Director of the Liberal Party: Brian Loughnane. Photo: Alex Ellinghausen

Business leaders say anything longer than that time frame would cause some to conclude the government lacked the "spine" to match its strong rhetoric. 

"They've talked the talk, they sure as hell better walk the walk as well," said one figure.

There is speculation that thousands of apprentices will lose staged Commonwealth incentive payments worth $5500 in total as the government argues a recent pay increase and its $20,000 interest-free loans provide enough help.

Illustration: Ron Tandberg.

Illustration: Ron Tandberg.

Fairfax Media also understands the government will increase the interest rate on student loans to help ease the impact on the budget from increased higher education spending.

The National Commission of Audit recommended interest on student loans should be increased to incorporate the government borrowing rate, as well as the cost of bad debts and administration costs.

Bureaucrats have long pushed for such a change, but it has been judged politically risky because of equity concerns. Higher interest rates would disproportionately affect women graduates, for example, who take time off work to have children.

Universities fees are also expected to be deregulated and Commonwealth support extended to for-profit colleges and sub-bachelor degrees. Despite the budget being painted as a harsh one across all sectors, overall funding for education will rise and funding for key research programs will be maintained.

Among the other features are a deficit tax on high-income earners, the abolition or merging of up to 50 agencies, delayed pension eligibility until 70, new GP co-payments, cuts to family payments, harsher rules for the dole and disability support pension, and a one-year freeze on MPs' pay.

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The Liberal Party's federal director, Brian Loughnane, is known to have told business representatives the government fully expects to take a hit from disgruntled voters but that the budget would also unveil several positive measures which have so far escaped reporting.

Mr Loughnane is close to Prime Minister Tony Abbott and participates in strategy conferences most mornings. He is also married to Mr Abbott's chief of staff, Peta Credlin.

The private comments conveyed to Fairfax Media suggest the government is banking on the longer-term strategy of getting credit down the track from voters for restoring the budget to health.

Mr Abbott has even predicted that voters would eventually thank the government for decisions now which inflict pain on struggling households and place strict new conditions on welfare recipients.

Mr Loughnane declined to comment, however he and other senior Liberals have previously argued the polls are largely meaningless this far from an election.

They say volatility in the numbers arises from low levels of voter engagement with the political process, and warn against post-budget polls because it takes "some months" for a budget to sink in and take effect in the electorate.

While several Coalition MPs have expressed deep concerns over the decision to break election promises by increasing petrol excise, bringing in $7-a-visit Medicare co-payment, and raising the top marginal income tax bracket, Liberals mostly remain resolute, knowing that a scheduled election is still more than two years away.

Cabinet and the Coalition joint party-room meet on Tuesday to discuss the budget – an opportunity to express frustrations before it is tabled at 7.30pm, but too late to make changes.

Many MPs said they were ready to begin the tough task of selling the bad news.

There is a widely held view in the party room that voters will ultimately reward the Coalition in 2016 for taking tough decisions in the short term.

While several MPs, including Ian Macdonald and Teresa Gambaro, have openly criticised measures such as the proposed deficit levy, Queensland MP Ewen Jones spoke for many MPs contacted by Fairfax Media when he said that “everyone is apprehensive but they understand that doing nothing is not an option”.

“Of course no one wants a new tax – or wants someone else to pay,’’ he said. “I just want the waiting over and done with. I think Tuesday night’s speech by Joe will be more important than [Peter] Costello’s in 1996 or [Paul] Keating’s in 1983. I want the sale to start. We've done all the talk and it's been an extraordinarily long lead-in to a first budget, eight months.”

One minister, who asked not to be named, said there was widespread recognition that selling the first Coalition budget would not be easy.

“But we believe in the strategy, we believe in the direction and now we have to argue it out,’’ he said.

Despite the welter of leaks in the lead-up to the budget, the minister said there would be a few surprises on the day.

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