Tony Abbott
Australian Prime Minister Tony Abbott gestures as he gives a speech on a business event at the Shanghai International Expo Centre in Shanghai, April 11, 2014. REUTERS

Prime Minister Tony Abbott believes his government's budget reforms will "ultimately" pass the Senate but admits he may encounter difficulties ahead. He said the budget will be approved since there is "no credible alternative" for controlled spending.

In a speech to the annual Economic and Social Outlook conference in Melbourne, he said white papers on tax review and federalisation will be crucial in the next election as the Coalition shapes its policy.

Mr Abbott said "the age of reform has not ended in Australia." Australia's new Senate will sit for the first time on July 7. The prime minister continues to earn the favour of crossbenchers for the changes in welfare spending and budget reforms. He said reforms were difficult but "necessary."

Reports said Australia needs to reform its budget because Mr Abbott believes his government had inherited a "debt disaster" and undeliverable spending promises. In his speech in the conference, Mr Abbott referred to former prime ministers in the Labor party and declared he doesn't underestimate the obstacles ahead. He reiterated his budget will pass since there was no other alternative on the table.

Mr Abbott previously said Australians 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.

In what has been described as "Australia's toughest budget" in 20 years, Mr 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 Labor-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 Mr 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 Labor 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.