The federal government will use the budget as a shock absorber to protect Australia from the biggest fall in the terms of trade in more than 50 years, Joe Hockey says.
The treasurer will on Monday release the government's mid-year economic and fiscal outlook, which is expected to show another blow out in the budget deficit.
Ahead of its release Mr Hockey warned of the significant headwinds facing the economy, and in particular the plummeting iron ore price.
Prices have dropped to around $60 a tonne, halving in a year.
Mr Hockey also named the fall in coal and wheat prices as contributing factors.
The resultant fall in the terms of trade is the largest since records were first kept in 1959, Mr Hockey said.
"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," he told reporters in Sydney.
The mid-year review would show the economy growing at about 2.5 per cent, strengthening to three per cent over the next few years, Mr Hockey said.
However, it would forecast unemployment to increase further "to levels that are a tick higher than what we forecast in the budget".
"But this year we have seen a significant improvement in job creation," he said.
"This year we have seen job creation run at three times the speed of last year."
The Abbott government is set to scrap 175 agencies to make budget savings, a measure unions fear could result in up to 9000 job cuts.
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