Australia's budget deficit for the 2015-16 financial year is estimated to reach 35.1bn Australian dollars ($27.96bn; £17.82bn).
The market had expected a deficit of some A$41bn for the period.
In his budget speech delivered to Parliament, Australian Treasurer Joe Hockey also pledged A$5.5bn for small businesses.
A $4.4bn family package to "reform the child care system" and help parents join the workforce was also unveiled.
Australia's economy has been slowing in recent times as it moves away from its reliance on mining.
Mr Hockey described the country's transition from one reliant on mining to one of "broader based growth" as difficult.
However, the budget papers showed the deficit was projected to fall to A$7bn by the end of the 2018 to 2019 financial year.
"This budget is responsible, measured and fair," said Mr Hockey.
"We are creating opportunities for job seekers, young and old. We are caring for our most vulnerable. We are keeping the country safe and secure," he said.
"This is a budget for small business people who want to innovate and grow."
Last year's budget had been criticised for being unfair, but the government said it needed "to end the days of borrow and spend".
The government's 2015-16 budget papers set out its proposed revenue and expenditure in the following financial year, and its fiscal policy for several years after that.
In December, the government said it expected the nation's deficit to grow to A$40.4bn in the 12 months to June.
At the time, it said falling prices for key export commodities had hurt the economy.