In a wake-up call for all sides of politics, Treasurer Joe Hockey’s midyear budget update will today show a $40bn blowout in forecast just six months ago to be worth $60bn from this year until 2018.

A hit to company tax collections has forced most of the revision but Senate objections have also added to the nation’s red ink, challenging demands on the commonwealth for more generous spending.

The Australian today revealed bleaker tax forecasts deepened the deficits by about $32bn over the four years while another $8bn comes from the need to modify controversial savings that were amended in the Senate.

Joe Hockey will confirm the new outlook in Canberra today with a warning that unemployment will rise and growth will be at risk from the steepest fall in the nation’s terms of trade in 50 years.

The Treasurer declared the budget would act as a “shock absorber” for the Australian economy to help protect jobs at a time when falling iron ore prices are dragging down export revenue.

Opposition treasury spokesman Chris Bowen claimed Mr Hockey’s efforts to blame Labor for the budget collapse were a “great Liberal lie”, noting today’s figures will include savings from measures rejected by the Senate — such as a 20 per cent to base university funding.

Mr Bowen said he would not repeat the “cheap and silly games” Mr Hockey played in opposition, where he blamed budget writedowns on the Labor government.

“He used to hold the (Rudd-Gillard) government to a standard which he refuses to hold himself to now he’s Treasurer,” Mr Bowen told ABC Radio.

“They based their entire election campaign around the promise that they could somehow return the budget to surplus with no tax increases and no cuts over and above what they said they would do, and that was always magic pudding economics.

“I am not playing the silly game that Joe Hockey used to play, the sophistry that said that somehow it’s his fault that iron ore prices have declined; I freely and openly acknowledge that.

“But what I do hold him to account for is the impact of his own budget. Since his own budget we’ve seen employment growth slow, we’ve seen consumer confidence smashed; his blunders and his bluster, his words and his action, have hurt the real economy.”

Mr Bowen accused the government of treating the foreign aid budget “as their ATM” but would not commit to restoring overseas development spending.

“I don’t think the world’s most vulnerable should be the cut of first resort,” he said.

Mr Hockey warned that a substantial new round of federal spending cuts would damage growth, forcing the government to let the deficits deepen and push back earlier plans to produce a budget surplus by about 2018-19.

This year’s deficit was to be scaled back to $29.8bn in the May forecasts but is now set to exceed $40bn, with a correction to the Treasury’s tax forecasts making up most of the change.

Mr Hockey told The Australian that total government cash receipts would see a “writedown of $21.7bn” when compared to the outlook in Labor’s last budget when Wayne Swan was treasurer.

The May 2013 budget said the receipts would rise to $401.2bn in the 2014-15 financial year but tomorrow’s update will forecast $379.5bn instead, showing the pressure on tax revenue.

Half the writedown in tax revenue comes from lower company tax forecasts and the remainder from a handful of other revenue sources, including a shortfall in ­income tax due to slower wage growth than expected.

As a result, this year’s deficit will be almost four times the size of the $10.9bn deficit Mr Swan promised in his last budget.

Mr Hockey warned Australia to prepare for the biggest fall in the terms of trade in five decades, ­illustrated by a fall in the price of iron ore from $92 a tonne at the time of the budget to $63 today.

“The government has decided to use the budget, which is stronger than it was 12 months ago, as a shock absorber for the biggest fall in our export prices in many years,” he 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.”