Australia is set to hit its debt ceiling this year as the government forecasts a large fall in revenue over the next four years.
Federal Treasurer Chris Bowen unveiled the government's updated economic statement on Friday, revealing a bleaker outlook for the economy as the mining investment boom peaked, commodity prices fell, the terms of trade declined and the Chinese economy lost steam.
Growth was estimated to slow to 2.5 per cent this financial year, down from the May budget forecast of 2.75 per cent, while the unemployment rate was expected to rise to 6.25 per cent in the next two years.
"We are being realistic and laying out that there is a softening that affects both growth and employment," Mr Bowen said.
Economists welcomed the lower growth forecasts for the next two financial years, which they said came closer to market expectations, but said the forward estimates in the outer years remained improbable.
"The estimates beyond 2014-15 appear unrealistic, with employment growth too weak to reduce the unemployment rate to 5 per cent," NAB economists said.
They said there were questions about whether the government would be able to return the budget to surplus by 2016-17, given the "unrealistic economic parameters".
UBS chief economist Scott Haslem criticised the government for its forecasts and missed budget targets, saying it was a "destabilising force" for the economy. "At some point, those controlling the fiscal purse need to realise the consistent inability to hit budget figures is increasingly due to flawed revenue forecasts and higher spending decisions, and less to do with a soft economy," Mr Haslem said.
The economic statement revealed a budget deficit blowout of $30.1 billion for the 2013-14 financial year, a sharp increase from the previous May budget estimate of $18 billion. The 2014-15 deficit estimate was revised to 24 per cent.
The blowouts were not expected to threaten Australia's triple-A credit rating, as credit rating agencies could tolerate near-term deficits if there were realistic middle-term efforts to balance the budget, TD Securities head of Asia-Pacific Research Annette Beacher said.
Government revenue was expected to reduce by about $8 billion a year for a four-year total of just over $33 billion. The resource rent tax was expected to come in $560 million lower. Major revenue measures included a tobacco tax increase, a bank deposit levy and a public service efficiency dividend.
Net government debt was set to peak at 13 per cent of GDP, a rise from the 11.4 per cent peak projected in the May budget.
Australia's debt ceiling was forecast to be reached by December 2013, so an incoming government would have to legislate to lift it.
Commonwealth government securities are forecast to rise to about $350 billion by April 2015, and to $370 billion by April 2016, the government said.
The total Commonwealth government securities on issue as of Friday stood at $263 million.