Tony Abbott Cautioned on Deep Budget Cuts in Health, Welfare And Education Amid 'Debt Disaster'

Australia is preparing for budget cuts and raising taxes as Prime Minister Tony Abbott defends his move as vital to avoid a debt crisis.

Abbott told Australians that they will "thank the Coalition" once cuts are made in the country's annual budget next week. He has to convince the people who are used to the government's generous welfare benefits that Australia's debt has worsened justifying the need for reductions on spending, including welfare.

According to the Wall Street Journal, critics said the country's public debt and government deficit remained "modest" compared to the debt situation of Europe and the U.S. Australia's Coalition government may be slowing down an economy already when dealing with declining mining investments.

Ahead of what has been described as "Australia's toughest budget" in 20 years, Abbott remains unfazed by criticism. In a statement, the prime minister said Australia was facing a "debt and deficit disaster" he inherited from the previous Labour-led government.

He said the country may experience years of economic stagnation if the debt and budget deficit are not addressed at once. According to Abbott, it would not be easy to deal with AU$123 billion of prospective deficit and AU$667 billion of debt.

The prime minister and his coalition government have been blaming the Labour for allowing debt to triple in amount since it came to power in 2007. The Liberal party said the interest on debt drove the party to risk cutting the budget of other projects.

Other economic observers said the Australian government focuses on the wrong direction. Economists have previously warned the prime minister against making deep budget cuts on health, education and welfare payments. They argued that too much of Abbott's promised austerity may be damaging the country's vulnerable economy still coping with the end of the mining boom.

Australia's retail sales gained only slightly in March based on recently released data which indicate consumers may have become cautious in spending amid looming budget cuts. Consumer confidence has dropped to its lowest level not seen since the global financial crisis in 2008.

Savanah Sebastian, an economist with Australian brokerage house CommSec, said Abbott's deep budget cuts in the short term may have a "detrimental impact on sentiment and in turn spending." Finance Minister Mathias Cormann has confirmed the annual budget would include a special tax for high-wage earners to help pay Australia's debt but no further details were given.