Treasurer Joe Hockey says the federal budget remains in poor shape, but he is encouraged by improving trends in the domestic economy.

In the 18 months since the May 2012 budget there has been a $95 billion deterioration in the bottom line across those forward estimates, he told an audience in Sydney on Friday.

He said when the mid-year economic and fiscal outlook was released before Christmas, Australians will see the true state of the books the coalition had inherited.

“I anticipate the story will be even worse,” he told the Centre of Independent Studies.

“It has been more of a disappointment than a surprise that overly optimistic forecasts over recent years have raised hopes only to be dashed by backfilling angst.”

He said consumers and businesses had rushed to strengthen their balance sheets and had been far smarter than the prior government, which had over-promised and under delivered on the budget recovery.

“The community is now far better prepared for the future than the government,” he said.

However, confidence is coming back with the share market around five-year highs, the property market gaining confidence, retail sales lifting and business confidence rising.

“It’s not all rosy, but the trend is encouraging,” he said.

“Whilst the continuing surge in resources exports will support growth, the rest of the economy must now step up to the plate to fill the gap.”