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Treasurer warns of spending cuts
Joe Hockey. Picture: AAP

A deteriorating economy has blown a $68 billion hole in Joe Hockey's Budget bottom line amid warnings tens of thousands of Australians face unemployment in coming years.

Releasing the mid-year Budget update this morning, Treasurer Hockey revealed this year's deficit will be $47 billion instead of $30 billion as forecast by Treasury and Finance in the first week of August.

Deficits in coming years have also blown out. Instead of a surplus of $4.2 billion in 2016-17, which was supposed to be the first Budget surplus since 2007-08, the Government is now facing a deficit of $17.7 billion.

The bigger than expected deficits have also hit overall debt.

The update reveals that without cuts in spending in coming years, gross debt will hit $667 billion or 26 per cent of GDP by 2023-24. It will reach $500 billion by 2018-19.

Without change, the Budget will not even get back into surplus by 2023-24.

Mr Hockey has used the update to clearly warn Australians that spending cuts will be necessary.

"Living within our means requires the elimination of waste, but it will also require people to adjust to reductions in some spending to which they have become accustomed," he stated.

While ahead of the update Mr Hockey and Prime Minister Tony Abbott blamed the Rudd and Gillard governments for the future state of the Budget, the documents reveal the state of the economy is the biggest threat to the nation's finances.

Of the $68 billion deterioration in the Budget, more than $54 billion is due to a slowing economy.

GDP growth for the coming financial year has been sliced by half a percentage point. Unemployment, forecast to edge down to five per cent in 2015-16 and the following year, is now forecast to stay around 6.25 per cent.

The higher unemployment rate is forecast to cost the Budget $3.7 billion over the next four years.

It all translates into fewer tax dollars for Canberra.

Personal income tax receipts have been written down by $3.4 billion since the pre-election update for this financial year and $5.2 billion in 2014-15.

The mid-year update incorporates all of the Government's election commitments except its decision on cutting 12,000 public servants.

The update suggests without spending cuts, which Mr Hockey has signalled will dominate next year's Budget, spending will grow by 3.7 per cent a year over the medium term.

It warns that would mean no tax cuts for Australians for at least another decade.

The Budget also warns that the Government is preparing for a fall in iron ore and other commodity prices.

"A large increase in supply (is) expected to drive prices lower over the forecast period and beyond," the update noted.

A change in the way Treasury projects the terms of trade has cost the Budget $2 billion over the forward estimates.

The States and Territories will also feel some pain with GST revenues tipped to be $1 billion lower over this year and next.

The update does include at least one increase in government charges. From January 1, personal insolvency fees will be lifted at a cost to personal bankrupts of $25 million over four years.