Big banks will face a new $6bn levy and most taxpayers will kick in to fund the National Disability Insurance Scheme under a budget designed to reboot the Turnbull government’s stagnant political fortunes and bury Tony Abbott’s legacy.

The high-taxing, big-spending budget unveiled by Scott Morrison dumps the unpopular “zombie” savings measures from Abbott’s 2014 budget while launching a new round of welfare cuts, and invests in health, infrastructure and school education in measures calculated to neutralise the opposition’s major attack lines against the Coalition.

Morrison explained the government’s conceptual about-face by arguing Australians were doing it tough. “When you haven’t had a pay rise in a while when you are worried about your job … no amount of a treasurer telling you we are doing better than the rest of the pack is going to alleviate that pain,” he said.

With some government conservatives already privately critical that Morrison has been too disposed to increasing revenue and insufficiently focused on cutting expenditures, the treasurer conceded that 2017 was not a budget for ideologues.

“Practical governments deal with problems and solve them. This is not a budget for ideologues, this is a budget for a government that is doing its job,” the treasurer said.

“There is clearly the potential for better days ahead,” Morrison told MPs as he delivered his budget speech.

Under measures unveiled by the government on Tuesday night, most Australians will face a 0.5% increase in the Medicare levy, kicking in from 2018-19, to fund the NDIS. Morrison conceded the increase was “an insurance levy on all Australians, pretty much” but in a pitch to bipartisanship, he said looking after Australians with disabilities was “all our responsibility … and therefore we all have to bear it”.

Labor said it would engage with the government about the increase in the Medicare levy. “We’ll have the conversation about the Medicare levy,” the shadow treasurer, Chis Bowen told the ABC on Tuesday night.

Bowen said the ALP would take its time to consider the impact, because it was a tax increase which hit every working Australian. He said the increase was happening at the same time as the government removed the deficit levy from higher income earners.

In an attempt to unwind the political damage inflicted from Labor’s “Mediscare” campaign, the government will lift the freeze on the indexation of the Medicare benefits schedule, and restore the bulk-billing incentive for diagnostic imaging and pathology services – health spending worth $2.2bn over the forward estimates.

With surging house prices in Sydney and Melbourne inflicting political pain, there are a number of modest measures designed to improve housing affordability, including a surprise tightening of deductions now available under negative gearing, and increasing the capital gains tax discount from 50% to 60% for investors prepared to develop affordable housing.

First home buyers will get a tax break on savings for a housing deposit, and older Australians will be encouraged to free up larger properties by allowing people aged over 65 to make a non-concessional contribution of up to $300,000 if they sell the family home.

Foreign investors will face new imposts – a levy of $5,000 if they fail to occupy or lease property they own for at least half the year. Developers will also be prevented from selling more than 50% of new developments to overseas buyers.

As telegraphed extensively before the budget, the government has also stepped up its investment in infrastructure, flagging that it might pursue outright ownership of the Snowy Hydro scheme rather than the current joint ownership structure with New South Wales and Victoria.

The government will create a new corporation to build a second airport in western Sydney, at Badgerys Creek, and develop a business case for a new rail link for the Melbourne airport. It also proposes to take a $8.4bn equity stake in the Melbourne-to-Brisbane inland rail project in an effort to kick along a proposal championed by Nationals that has languished for years.

The budget delivers mixed fortune for business. Small businesses with turnover of up to $10m will get an extension of the $20,000 instant asset write-off for a further 12 months, and the government will persist with attempting to deliver a tax cut for Australia’s largest corporations, a move which most polls suggest is deeply unpopular.

But Australia’s big banks and firms intent on plugging their skills gaps by hiring foreign workers will face new taxes. With the government facing continuing political pressure for a royal commission into the banking industry following a string of financial scandals, from 1 July Australia’s five biggest banks will be hit by a new levy, delivering $6.2bn over the forward estimates.

The government will also apply a new accountability regime for executives, requiring them to register with the banking regulator, and banks will face larger fines if they breach misconduct rules.

Seeking to play up the business impost, Morrison told reporters the only people facing tax increases as of 1 July would be “big banks” and multinational corporations, targeted by anti-avoidance measures.

Bowen made it clear Labor would not stand in the way of the new levy, but he said it was incumbent on the government to “explain why and how it won’t be passed on to Australian consumers”.

While investors waited for news on how the banks would be hit in the budget, almost $14bn was wiped off banking stocks.

The chief executive of the Australian Bankers Association, Anna Bligh, reacted furiously to the bank levy, declaring it policy on the run. “The banks don’t have a secret stash of money,” Bligh said on Tuesday night.

“I think one of the things that should give us all pause for thought is what happened today on the stock market, you know, $14bn stripped off the value of banks just on the speculation that this might be going to happen,” Bligh said.

“I think that gives you a pretty clear indication of what investors think of this and I don’t think it’s a good sign.”

The Business Council of Australia chief executive Jennifer Westacott said she understood the politics of the bank levy, but she warned the government against provoking business, and said no-one wanted a re-run of the mining tax debate.

The government is also proposing to raise $1.2bn from a levy imposed on businesses employing foreign workers. Employers will be slugged between $1,200 and $1,800 a worker on temporary work visas, and there will be a one-off levy for employees on permanent skilled visas.

Some welfare recipients will also face a new round of punitive measures. Jobseekers who fail to attend appointments will face penalties, and the government will conduct a drug-testing trial for 5,000 benefit recipients.

Any jobseekers who test positive for drug use will be placed on a cashless debit card, and people could also be denied disability support if their condition was caused by substance abuse.

The government has booked a $632m saving over the forward estimates from the welfare changes.

The head of the Australian Council of Social Service, Cassandra Goldie, said she was disappointed the budget contained another message of “let’s get tough on people on social security”.

“The zombie measures are gone, very good. But here we have now trials for drug testing, and the government seems to be wanting to say that we’re still tough on social security when we know the big problem in Australia is jobs,” she said.

After a deficit of $29.4bn in 2017-18, the budget forecasts a return to a surplus of $7.4bn in 2020-21.

The biggest revenue measures in the budget come from the increase in the Medicare levy, worth $8.2bn, the new bank levy, worth over $6bn, and the skills levy at $1.2bn.

The biggest savings come from a $3.7bn cut to higher education revealed in the week before the budget was unveiled, freezing indexation for family payments, which was part of the savings measures to pass the government’s childcare package, and ushering in the use of generic medicines.

In his budget speech, delivered in parliament on Tuesday night, Morrison conceded that “not all Australians have shared in [Australia’s] hard-won growth. Many remain frustrated at not getting ahead.

“This is especially true in areas where technological change, globalisation and the end of the mining investment boom has had a significant impact.”

He noted it had been “a fair while since most hardworking Australians have had a decent pay rise”.

The treasurer said: “This puts pressure on Australians and on their families … I believe though that we are now moving towards the end of this difficult period.”