And the midyear update, to be released on Monday, is expected to reveal tens of billions of dollars in lost revenue over the next four years flowing from falling commodity prices and with bigger budget deficits for years to come.

Mr Hockey vowed on Sunday to use the budget as a "shock absorber" to protect the economy from the largest decline in the terms of trade since 1959.

The Mid-Year Economic and Fiscal Outlook [MYEFO] will include spending measures announced since the May budget such as the $630 million counterterrorism package, the estimated $400 million cost of Australia's deployment to Iraq, the impact of recently signed free trade agreements, as well as a $3.2 billion rise in family tax benefit payments and a $2.4 billion rise in childcare rebate payments, both over four years. The proposed compromise on higher education reforms, which will cost $3.5 billion, will also be accounted for.

But the fall in revenue from companies, along with slower wages growth and the failure to pass key budget savings, will combine to deliver a big hit to the budget bottom line.

Throwing the revenue hit into sharper relief, Mr Hockey said that "in the 2013-14 budget Wayne Swan said he was expecting $401.2 billion in receipts for this financial year (2014-15), this MYEFO shows we are expecting $379.5 billion in receipts for this financial year - a writedown of $21.7 billion".

The Treasurer warned on Sunday that unemployment, which is currently 6.3 per cent, would rise while economic growth would remain steady at about 2.5 per cent as the the economy faced severe "external headwinds" including an iron ore price that had plunged from $120 a tonne 12 months ago to $63 a tonne, at a cost to the budget of $9 billion in revenue over two years.

"We are forecasting that it will remain around $60 a tonne for the foreseeable future. That more than 30 per cent fall in iron ore prices has had a big impact on the budget, as has a 15 per cent fall in thermal coal prices and a 20 per cent fall in wheat prices since the budget," he said.

"The government has decided to use the budget, which is stronger than it was 12 months ago, as a shock absorber for the biggest fall in our export prices in many years. If we don't use the budget as a shock absorber for this extraordinary fall in the terms of trade, then Australians will lose jobs and we will lose our prosperity."

The May budget forecast a deficit of $29.8 billion in 2014-15, falling to a deficit of $2.8 billion by 2017-18 and strong surpluses of 1 per cent of GDP by 2024-25.

But Deloitte Access economics director Chris Richardson warned on December 1 the deficit could blow out by as much as $36 billion over four years, including a $5 billion rise in the deficit in 2014-15 to about $36 billion.

And on Sunday Mr Richardson told Fairfax Media the hit to revenue could be even worse than that forecast just two weeks ago.

"The budget has been blowing further black smoke," he said. "Lower oil prices, for example, are good news for punters but more bad news for the budget."

The bad news for the budget bottom line had broadened from falling commodity prices, he said, with recent wage growth figures "the worst ever recorded" and a "growing problem for the budget".

Shadow treasurer Chris Bowen said the key problem was not falling iron ore prices but Mr Hockey's "unfair" budget, which he said had rattled consumer confidence.

"Of course there's been a decline in iron ore prices but there's also been a collapse in consumer confidence, business confidence and rising unemployment on his watch," he said.

And he lashed the Treasurer for claiming he had not broken his promise to return the budget to surplus: "Does he think the Australian people were asleep at the last election campaign when the now PM and Treasurer went around the country promising a return to surplus?"

But Mr Hockey rejected suggestions he had broken a return to surplus promise, insisting he "never" set a firm date for the economy to be back in the black and "that was implied by the Labor Party".

In opposition, Mr Hockey and the Coalition committed to a surplus in the first year and then the first term of an Abbott government but during the 2013 election campaign the Coalition backed away from that pledge.

ACTU president Ged Kearney said the Abbott government needed to set out a plan for growth based on good jobs with decent wages and conditions.

"Unemployment is already higher than the 6.25 per cent forecast in the federal budget and that figure could well be revised even higher in Monday's budget update," she said.

"The longer we go on with an unemployment rate with a '6' in front of it, the worse the social and economic outlook will be for Australia."