A rise from 65 to 67 in the qualifying age for the pension is the big surprise in a federal budget that also cuts middle-class welfare and commits $22 billion to nation-building projects in a bid to counter the worst economic crisis in generations.

The higher qualifying age for the pension — the first change for men since the pension was introduced in 1909 — will be phased in between 2017 and 2023. The first affected will be baby boomers born after 1952.

Delivering his second budget, Treasurer Wayne Swan admitted the pension age move would be unpopular but said it was necessary because Australia faced a "demographic time bomb".

But those already on the pension are budget winners, with single age pensioners to get an extra $32.49 a week, taking them to two-thirds of the couples' combined rate. Couples will get an extra $10.14 a week.

Defending the rise in the pension age, Mr Swan said that at present there were five Australians of working age for every person aged 65 and over. By 2050 there would be two and a half.

He said there was no better time to tackle the problem than when a degree of fairness was brought to the age pension.

Mr Swan said the budget — "forged in the fire of the most challenging global economic conditions since the Great Depression" supported "jobs today by investing in the infrastructure we need for tomorrow".

The investment program, billed as the biggest since the Snowy Mountains scheme, includes money for roads, rail, ports, clean energy, education, health and broadband.

Victoria will get $3 billion for a new rail line between Melbourne's west and the city that will separate regional and suburban trains, easing congestion and improving travel times.

La Trobe, Melbourne and Monash universities will get money from a $3 billion boost for education infrastructure.

A multibillion-dollar clean energy program includes up to four Solar Flagship projects that could produce as much energy as coal-fired powered stations.

Most of the infrastructure spending had been built into last year's budget although the projects had not been chosen.

Describing this as a "nation-building budget", Mr Swan said: "Others may be overwhelmed by the scope and the ferocity of the biggest global downturn in memory. But Australians are too strong, too resilient, and too united to be overwhelmed."

In a grim economic outlook, the budget estimates a record $58 billion deficit in 2009-10, nearly 1 million out of work by June 2011, and a fall of half a percentage point in GDP in the coming financial year before growth recovers in 2010-11.

"This is not an easy budget for easy times," Mr Swan said, estimating it would lift GDP by three-quarters of a percentage point in 2009-10. He said the Government's actions in the budget and earlier packages "are expected to support up to 210,000 jobs".

The Government would fully offset its new spending in 2012-13 and be "on the path to surplus by 2015-16", while net government debt would peak at 13.8 per cent of GDP in 2013-14.

The pension rise, which flows to the disability pension and will cost $14 billion over five years, is being paid for by changes in pension eligibility, less generous super arrangements, a means test that will reduce or deny the health insurance rebate to higher earners and changed rules for family payments.

The income threshold for family tax benefits and the baby bonus will be frozen for three years, making more families ineligible as incomes rise. The change will save $1.4 billion over four years. The indexation used for Family Tax Benefit A will become less generous, saving $1 billion over four years.

Student payments such as youth allowance and ABSTUDY will be re-targeted to students most in need.

The budget delivers already-legislated tax cuts, promises a paid parental leave scheme from 2011 and extends the first home owners' grant for another six months before it reduces.

Shadow treasurer Joe Hockey said it was a "classic tax-and-spend Labor exercise, but on a far more reckless scale than before". He said the budget delivered a "dismal trifecta" — record spending, a record deficit, and a further severe rise in unemployment.

Independent senator Steve Fielding said it was a "budget of broken dreams", hitting hopes of owning a home, having a family, a secure retirement, and a fair go for small business. He said it was too early to say whether he would try to oppose any budget measure.

Independent senator Nick Xenophon said he would "let the dust settle" before deciding whether to oppose anything, adding: "This is the Harvey Norman budget — buy now, pay later".

'I can't believe the deficit'

Shadow treasurer Joe Hockey has hit out at the federal government's budget deficit, accusing them of wasteful spending. Hockey did, however, indicate the opposition would not block any parts of the budget.

Budget day upon us: Bolt is here

The Herald-Sun’s Andrew Bolt talks to Ross and John every Tuesday at 8:15. Click on the link to hear Andrew’s take on today’s Budget announcement. Andrew also sets his sites on the Superb Parrot. You can also hear Dr. David Knox’s prediction on what the budget will mean for your super.

• 3AW Breakfast's budget predictor
• Joe Hockey with Neil Mitchell
• Swan: Is John Howard to blame?
• Costello hits back on 3AW

Hinch slams Generation 'Why'

There's no such thing as a rainy day for Generation Y with 'The Ruddster' around, says Derryn Hinch: "You worry how they'll cope if the proverbial hits the fan. Won’t be enough for Generation Y to sit around and ask Why. Why me?" Read more and have your say.