Australia will forgo $4.1 billion in tariff revenue as a result of the free-trade agreement with China.
The figures for the next four years are revealed in the mid-year economic and fiscal outlook released on Tuesday.
With the agreement now in force, tariff revenues will fall by $610 million in 2015/16.
Finance Minister Mathias Cormann said the trade deal would benefit exporters as China's tariffs dropped, and consumers as cheaper goods were imported.
"We made a judgment that in the circumstances this is the appropriate treatment for this sort of measure," Senator Cormann told reporters in Perth.
The MYEFO document said the government did not believe there should be domestic tax increases or reductions in domestic spending to offset the revenue impact.
Independent senator Nick Xenophon said the figures made for grim reading.
"I just really hope that the free-trade agreement with China is worth it, when you consider it is going to have an immediate impact on the budget," he told reporters in Canberra.
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