Federal Treasurer Chris Bowen has predicted weaker economic growth, growing unemployment and more government debt.
But economists and business groups have questioned whether the new economic numbers are still too optimistic in forecasting a budget surplus within four years.
Mr Bowen and Finance Minister Penny Wong on Friday released an economic update to the May budget and laid out the plan Labor will take to the federal election, which could be called on Sunday.
It shows a further $33.3 billion writedown in government revenues over four years to 2016/17, due to weaker global growth, lower commodity prices, and softer domestic personal and business tax receipts.
"We are calling it as we see it," Mr Bowen told reporters in Canberra.
"There are challenges in this environment."
Shadow treasurer Joe Hockey described it as a budget in "freefall".
"It's blatantly obvious - Labor has lost control of the budget and is losing control of the economy," Mr Hockey told reporters in Melbourne.
Labor will make $17.4 billion of "responsible savings", including a higher tobacco excise and changes to fringe benefit tax arrangements on cars.
Mr Bowen said Australia was undergoing an economic transition as the mining investment boom ended "not a crisis".
The budget deficit is now forecast at $30.1 billion in 2013/14, almost double the May estimate.
Deficits are also forecast for the next two years before Australia reaches a surplus of $4 billion in 2016/17, which is smaller than the $6.6 billion expected two months ago.
Whoever wins the federal election will have to seek parliamentary approval to lift the national debt ceiling by up to $100 billion.
The current limit of $300 billion of commonwealth government securities (CGS), or gross debt, is expected to be reached around December this year, and then hit $370 billion by 2015/16.
Economic growth has been cut to 2.5 per cent in 2013/14, from 2.75 per cent, while unemployment is expected to rise to 6.25 per cent in 2013/14 and 2014/15, from 5.75 per cent. Currently, the jobless rate is around 5.7 per cent.
National Australia Bank chief economist Alan Oster believes the forecasts, particularly in the out years, are too optimistic.
"There must remain serious doubts about the prospect of a surplus even on the new timetable," he said in a note to clients.
Business Council of Australia chief executive Jennifer Westacott also said the government's fiscal strategy is not on track for a surplus, which would need a "concerted effort" to change the structure of government spending.
Australian Industry Group chief executive Innes Willox said the update demonstrated "once and for all" that Australia's existing tax base and spending priorities were not sustainable.
"Our tax system clearly requires major surgery," he said in a statement.
Commonwealth Securities chief economist Craig James believes the main thing holding back the economy is the uncertainty about the election.
"Once the uncertainty is resolved there are good reasons to expect a sharp lift in the performance of the economy," he said.
