Prime Minister Tony Abbott has warned colleagues to expect anxiety in the community as the government considers spending cuts ahead of the May budget.

Mr Abbott told a coalition joint party room meeting in Canberra on Tuesday the build-up to a new government’s first budget is always a difficult time especially when there was such a “fiscal repair job” to do.

While the public was not hostile or unhappy with the government, it was anxious about the budget, he said.

It was the job of MPs to reassure them and show the government’s plan for the future.

Mr Abbott said the economic rationalism of the 1980s had worked, generating a golden period with high real wages and doubling the average wealth of Australians.

However, the government faced greater challenges than when former prime minister John Howard came to power in 1996, with a higher deficit, pressure on the immigration budget and iconic Australian businesses coming to it as “an ATM of last resort”.

It would be a difficult year and a test of character.

One MP told the party room the government should reform capital gains tax to ensure the longer an asset is held the lower the rate.

Two regional MPs raised the issue of penalty rates and the impact on youth unemployment.

Mr Abbott told the meeting some commercial centres of towns and cities had become “ghost towns” on Sundays because of the impact of penalty rates.

While the government would stand by its election commitment on workplace reform, he said it also needed to take a “practical and problem-solving” approach.