Treasurer Joe Hockey is expected to reveal revenue has taken a further hit of $6.2 billion in just over six months.
Mr Hockey will deliver his midyear economic update on Monday, amid reports of a forecast of $379.5bn in receipts following a figure of $385.7bn in May.
Fairfax Media says the outlook will point to tens of billions of dollars in lost revenue over the next four years as a result of falling commodity prices.
News Corp Australia says deficits over the period will almost double to $100bn, signalling little hope of economic improvement without unpopular reforms to taxes and spending.
Mr Hockey warned on Sunday of job losses and an end to Australia's prosperity ahead of the update, with plummeting iron ore prices the chief cause.
Prices have dropped to $60 a tonne - halving in a year - with the resultant fall in the terms of trade the largest since records were first kept in 1959.
"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," Mr Hockey said.
The mid-year statement will show the economy growing at about 2.5 per cent, strengthening to three per cent over the next few years, he said.
However, it will also forecast unemployment to increase further, "to levels that are a tick higher than what we forecast in the (May) budget".
Finance Minister Mathias Cormann told ABC radio that despite Labor attacking the government for being too pessimistic in its forecasts, "it turns out we weren't aggressive enough in downgrading the revenue assumptions that we inherited".
He confirmed the government wasn't going to chase the fall in revenue.
The ABC reported the foreign aid program would be slashed in Monday's budget update.
It's suggesting foreign aid cuts of more than $3 billion, on top of $7.6 billion in the May budget.
Agriculture Minister Barnaby Joyce said the government had to turn around Australia's "parlous" financial situation "even if it hurts us".
"Every time someone says to us mining is not important, we can live without coal mining, go and have a look at what's happening to the budget right now," he told ABC television.
Shadow treasurer Chris Bowen hit out at the cuts to foreign aid, saying the coalition was treating overseas development as an ATM.
"It is just their cut of first resort on every occasion," he told ABC radio.
Mr Bowen acknowledged Australia's finances were suffering from falling iron ore prices.
But he said the government's budget was also responsible for the deterioration.
"Since (Mr Hockey's) own budget we've seen employment growth slow, we've seen consumer confidence smashed," he said.
"His blunders and his bluster, his words and his actions, have affected the real economy."
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