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 $60 a tonne, halving in a year.

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.

The Treasurer will on Monday release the government’s mid-year economic and fiscal outlook. Picture: News Corp. Source: News Corp Australia

“This year we have seen job creation run at three times the speed of last year.”

Economists say the mid-year economic outlook could reveal a deficit for 2014/15 upwards of $35 billion, much worse than the $29.8 billion shortfall forecast in the May budget.

Mr Hockey has laid the blame for the growing deficit with Labor, the Greens and crossbenchers, who have blocked billions in budget savings in the Senate.

The treasurer again appealed to opponents in the upper house to work with the government to strengthen the budget.

“Do not continue to provide mindless opposition to the budget initiatives, because ultimately it reduces our capacity as a nation to deal with some of the headwinds that we are facing,” he said. The government has already flagged the axing of 175 government agencies as part of new savings measures to be announced on Monday. The hit list is in addition to the 76 closed following the May budget, a cull that will save a reported $539.5 million over four years.

But Mr Hockey denied it would lead to a reduction in services. Those slated for the chop include the Vietnam Veterans’ Education Centre Advisory Panel, Expert Advisory Panel on Northern Australia, Australia in the Asian Century Advisory Board and World Parks Congress National Steering Committee.

“If you look through what was the reported list of agencies yesterday in the paper, you can see that there’s a vast number of agencies that have a mission that is no longer core business for government,” he said.