The next few months should give Australians a better idea of the Abbott government’s first-term economic agenda, after a haphazard first few weeks of office.

The May budget will be a key test for a government that talked so tough on debt and deficit in opposition.

It faces a budget that’s deteriorated in the months since the election and an economy that continues to grow at a sub-trend pace as it struggles to pick up the slack from a fading mining investment boom.

Treasurer Joe Hockey’s mid-year budget review released eight days before Christmas forecast deficits over the next decade and ballooning government debt in the absence of substantial policy change.

Australian Chamber of Commerce and Industry outgoing chief executive Peter Anderson says the nation faces a “serious financial challenge”.

“This budget deterioration makes the work of the commission of audit a national priority,” he says.

“In the past three years, we complacently wrote huge cheques for government spending without money in the bank to pay for them and we now face higher and higher interest payments on borrowings.”

The audit, headed by Business Council of Australia president Tony Shepherd, is examining government activities and spending to find room for savings and efficiency improvements.

A preliminary report is due in January with a final report due in March.

However, government actions taken since it was sworn in have raised a few eyebrows, such as the decision to block a US takeover of Australia’s grains handler GrainCorp.

This brought into question the coalition’s post-election mantra that Australia is “open for business” and put some of the coalition’s business supporters offside.

Likewise, Hockey’s attempt to lift the debt ceiling by $200 billion to $500 billion after years of chastising Labor for rising debt levels also surprised.

In the end, the government struck an eleventh hour deal with the Australian Greens – a party it once described as “economic fringe dwellers” – to scrap the ceiling altogether.

“This mob opposite are not the people they promised Australians they would be at the election,” Opposition Leader Bill Shorten told parliament recently.

Prime Minister Tony Abbott says wherever he looks, he finds fiscal problems generated by Labor.

“The former government has left a mess,” he told parliament.

Hockey also gave an $8.8 billion grant to the Reserve Bank of Australia (RBA) to help build up the central bank’s depleted reserves – a prudent decision, albeit one not demanded by the RBA or Treasury.

The size of the RBA grant helped to push the 2013/14 budget deficit forecast to $47 billion, compared to the $30.1 billion predicted by Treasury in August.

So despite the political rhetoric about getting the budget under control, it’s a delicate task for a government facing a subdued economy generating less tax revenue.

The Organisation for Economics Cooperation and Development (OECD) has urged caution, warning of the need to avoid tough fiscal tightening while the economy remains in transition.

The switch from a fading mining investment boom to broader-based economic growth is proving less smooth than initially hoped, despite the support provided by the central bank.

The RBA has slashed the cash interest rate to an all time low of 2.5 per cent and provided a total 225 basis points worth of easing since 2011.

The economy is currently growing at an annual rate of 2.3 per cent, well below the trend pace of around 3.25 per cent.

Treasury expects growth of around 2.5 per cent for at least another year, putting upward pressure on the jobless rate from 5.8 per cent now to over six per cent.

Still, pockets of strength in the economy could prevent the central bank cutting any further.

These include resurgence in the residential property market that has lifted house prices by the fastest pace on average in more than three years. At the same time, monthly home building approvals are at their highest level in nearly four years, boding well for the construction sector.

Retail spending has also improved, following a consumer confidence boost following the end of three years of fragile minority government under Labor.

But manufacturing continues to struggle, undermined by a relatively high Australian dollar despite a decline from the 2013 high of around 105 US cents to just below 90 US cents now.

RBA governor Glenn Stevens agrees the exchange rate remains “uncomfortably high” and needs to be lower to achieve more balanced growth in the economy.

Stevens even flagged possible intervention in the foreign exchange market, although many economists viewed this as more of a case of trying to talk the dollar down than suggesting actual action.

Aside from the commission of audit, the government has other reviews, including a “root and branch” inquiry into the financial system for the first time in 16 years.

Hockey undoubtedly has a busy year ahead.

“It is terrific but it is also challenging,” he says.

“There’s are a lot of issues on, and you would expect me to deal with them and that is what I am trying to do.”