Australia's budget: Harsh or fair?

Australian finance minister: Budget is 'fair'
Australian finance minister: Budget is 'fair'

Australia's conservative government has delivered the country's harshest budget in almost 20 years, stoking a fierce debate as to whether pain is necessary when finances are in relatively good shape.

In its first budget since coming to power last September, the government led by Prime Minister Tony Abbott late Tuesday unveiled a number of measures aimed at cutting the country's budget deficit in the years ahead.

They include an extra 2 percent rise in income tax for those earning above A$180,000 ($166,000), a cut to 16,500 public sector jobs, the rolling back of universal healthcare and rises to the pension age.

Read MoreTough Australian budget slashes welfare to rein in deficits

"They've said we've got a great big debt problem here in Australia. If you go to the OECD (Organisation for Economic Co-operation and Development) figures, you'll see that Australia has 12 percent of its GDP (gross domestic product) as debt, the OECD average is 73 percent," said Clive Palmer, leader of the Palmer United Party and a mining magnate who is ranked among Australia's richest 50 people by Forbes.

"So the treasurer has gone to the Australian people to deliver a budget that is ideologically based and it will hit a lot of people," he said.

Aussie billionaire: Budget is 'based on lies'
Aussie billionaire: Budget is 'based on lies'

Australia's economy has enjoyed over 20 years of annual growth, weathering the global financial crisis thanks to a mining boom fueled by strong demand from China – the country's biggest trading partner.

But a slump in mining investment and a slow response from other parts of the economy to record low interest rates has hit tax revenue at a time when expenditure has grown.

Read MoreOECD cuts global growth forecast, warns of complacency

The government forecasts a budget deficit of A$29.8 billion ($28 billion) in the 2014/15 fiscal year, falling to A$2.8 billion by 2017/2018 or 0.2 percent of GDP.

"There's clearly a tightening of fiscal policy but it will be fairly minor," said Cherelle Murphy, a senior economist at ANZ bank. "The cuts start 2014/15 and build over five years. I mostly think we'll get a 0.25 to 0.5 percent reduction in GDP as a result of the measures last night."

Australia's Treasurer Joe Hockey and Finance Minister Mathias Cormann.
Getty Images

Australia's Finance Minister Mathias Cormann told CNBC: "It's a budget that puts our government spending on a more sustainable medium to long-term trajectory."

"We are hopeful that the people of Australia will come with us," he added.

Indeed, one concern is that public spending cuts and tax hikes will hurt consumer sentiment and encourage the central bank to keep interest rates at record lows for longer than planned.

Australia's central bank leaves key rate steady at 2.5%

"In an environment where domestic demand growth is already fragile and significant risks remain in the handover from mining led economic growth, this Budget does pose a risk to the near-term outlook despite having laudable medium term objectives," economists at Goldman Sachs wrote in a note.

Shadow Treasurer Chris Bowen told CNBC the opposition Labor Party would "oppose strongly" plans to make Australians pay to go the doctor and the rise in the retirement age to 70.

Wayne Swan: 'There is no budget emergency'
Wayne Swan: 'There is no budget emergency'

Former Australian Treasurer Wayne Swan said there was no budget emergency to warrant a tough budget.

"Yes, there's a job to deal with the future to make sure our expenditure is sustainable," he said. "What we've seen are really savage cuts to education and health and those are being used to pay for the government's other priorities that are not used substantially to pay down debts."

Australians meanwhile took to Twitter to give their verdict on the budget, with users describing their reaction in just three words under the hashtag #ThreeWordBudget. Some of those included "eat the poor" and "that stopped votes."