THE International Monetary Fund has downgraded Australia’s economic outlook as Treasurer Joe Hockey struggles to pull together a Budget beset by falling iron ore revenues.

The IMF early this morning released its world economic outlook, warning Australia had been hit by the global commodity downturn.

It downgraded its forecast for Australia’s growth from 2.9 per cent to 2.8 per cent, and said unemployment would rise this year from a forecast 6.1 per cent to 6.4 per cent.

The news comes as Mr Hockey, in New York for high-level talks, struggles to pull together a Budget facing another $25 billion fall in revenue due to crashing iron ore prices.

Mr Hockey dialled in to a Cabinet meeting in Canberra yesterday as the Abbott Government works on its make-or-break May 12 Budget.

Unlike last year’s Budget, which tried but failed to ­introduce $34 billion in savings and pushed Tony Abbott’s leadership to the brink, this document is shaping up as a more modest attempt at ­reform and savings.

The Treasurer, who is spending the week at global talks and meetings with ratings agencies, the G20 and investors, on Tuesday batted away criticism from former Liberal treasurer Peter Costello.

Mr Costello had used his column in the Herald Sun to lambast the Abbott Government’s economic management, calling its claim of lower, fairer taxes a “morbid joke’’.

“I really wish I had the revenue coming into the Budget that Peter Costello had when I was a part of his government,’’ Mr Hockey told ABC.

“If I had the same revenue as he had then I’d be getting $25 billion extra each year to be able to spend on things, but unfortunately we’re the equivalent of $25 billion a year worse off than what the revenue and taxes were in the Costello Budget.’’

Speaking on the floor of the New York Stock Exchange, Mr Hockey said Mr Costello’s ­intervention was “free advice’’ and that was all it was worth.

The Government is also locked in a brawl with the states and territories over GST revenues, with Western Australia fighting for a bigger slice of the carve-up.

“The GST is a tax which is raised for the states to be spent by the states,’’ Prime Minister Tony Abbott said.

“It can’t and shouldn’t be touched without the consent of all the states and territories.

“So, I hate to say this to the states and territories, but the states and territories really should sort this out among themselves.

“It’s money that belongs collectively to them and collectively they should make a decision and being the grown-up adult governments that they are, that’s what I expect them to do.’’

The issue will come to a head at the Council of Australian Governments meetings in Canberra on Friday.

Opposition Leader Bill Shorten said the Budget, due to be handed down in a month, was “unravelling in front of our very eyes’’. “Peter Costello’s right — Hockey is a joke but Australians stopped laughing a long time ago,’’ he said.

ellen.whinnett@news.com.au