The Federal Government says it is "on the right track" to put the budget back in the black in 2019-20.
It means the budget would return to surplus in a third term of a Coalition government.
The budget deficit for this financial year will be $40.4 billion, more than $10 billion larger than forecast in May, in a blowout that is set to continue for at least four years.
The Mid-Year Economic and Fiscal Outlook (MYEFO) has been released after a slight delay caused by the siege in central Sydney.
The May budget had forecast a deficit for 2014-15 of $29.8 billion.
Next year's deficit will be $31.2 billion, or 1.9 per cent of GDP, up from the May forecast of $17.2 billion.
And in 2017-18, the final year of budget forecasts, insteadof a deficit of $2.8 billion, the deficit will still be $11.5 billion.
The budget is projected to reach a slim surplus in 2019-20, "reaching 0.8 per cent of GDP by the end of the medium term".
Treasurer Joe Hockey said the Government had "made a good start".
"There is more work to be done but we are on the right track," he said.
"Rather than never-ending deficits, the budget is on track for a credible surplus.
"We are being cautious but realistic in relation to our underlying assumptions.
"There's no massaging the numbers here, none at all."
Surplus put off to the never never: Bowen
Shadow treasurer Chris Bowen has slammed the surplus delay as a broken promise.
"The surplus has been put off to the never never," he said.
"Clearly that is not what the Government promised. The Government promised a return to surplus and they made that the centrepiece of their election campaign."
The budget update shows the Federal Government will receive $31.6 billion less in tax receipts over the next four years - a fall mostly driven by a 30 per cent collapse in iron ore prices.
"We are now witnessing the largest fall in the terms of trade since records were first kept in 1959," Mr Hockey said.
"This has been faster and deeper than anyone expected. Our nation's export income has not been what we expected."
The figures reveal wheat prices have also fallen by 20 per cent since the budget.
Weaker growth in wages* - *at just 2.5 per cent, the lowest in about 15 years *-* and employment are forecast to lower tax receipts by $2.3 billion this financial year and $8.6 billion over the forward estimates.
The Treasurer said "newer, higher taxes" was not an option.
"To try and recover these falling revenues now through newer higher taxes would unquestionably harm the Australian economy," he said.
But MYEFO also points the finger at the Senate, saying delays in passing legislation has cost $10.6 billion over the four years of the forward estimates.
That includes axing the mining tax, but keeping some of its associated measures, including the SchoolKids bonus, will cost $6.6 billion over the outyears.
And delays to social security changes are forecast to cost the budget $2.9 billion.
The government said $33.9 billion in measures that will improve the bottom line remain deadlocked, waiting for legislation to pass.
Unemployment is also expected to peak at 6.5 per cent this year, up from the 6.25 per cent that had been forecast in May and remain at that peak until 2016-17, when it is forecast to fall to 6 per cent.
Military operations in Iraq to tackle the threat of terrorism will cost$306 million this financial year.
This is in addition to the$631.4million the Government had already announced to boost national security.
The Government said this extra spending had been fully offset by cuts, including to foreign aid by $3.7 billion over the forward estimates.
A proposed freeze on family payment rates - which has not yet passed parliament - will also be extended until 2017, with a potential saving of $768 million over two years.
The free trade agreement with Japan will also reduce revenue by nearly $1.6 billion over the forward estimates, though the Government argues the deal will improve our trade position overall.
The budget update also outlines the Government's intention to shut down a further 175 government bodies to reduce the size of the public service.