A leading budget watcher is forecasting a further blow-out in the budget deficit, with the Federal Government's position expected to be $21 billion worse by 2018-19 than forecast in the latest December update.

Deloitte Access Economics' Budget Monitor is forecasting a further $16 billion in revenue write-downs over the next few years due to slow wage growth limiting income tax increases and weaker corporate taxes due to China's slowdown.

Even the recent bounce in iron ore prices will not be enough to prevent another revenue write-off - Deloitte forecasts that it could add $15 billion in revenue if sustained, but that only cuts by half the $30 billion in write-downs that Deloitte would otherwise forecast.

The report warned that a rising Australian dollar is likely to offset many of the revenue benefits from a stronger iron ore price.

While revenue write-downs are the biggest short-term hit to the budget, the report's author Chris Richardson said spending increases over the past decade shoulder more of the blame.

"Most of the mistakes in the budget in Australia over the last decade have actually been in spending and we'd be comfortable to see the bulk of budget repair done on the spending side," he told ABC News Online.

"Equally, you cannot ignore the revenue side. Taxes have to go up too."

Mr Richardson has advised that the Government needs to be brave as it prepares the Pre-Election Fiscal Outlook (PEFO) document in order to avoid budget shock.

"During an election campaign, they do get one chance — one shot — to tell their true view to all Australians ahead of the election," he said.

Treasury slammed for 'Pixies, Elves and Fairies Outlook'

Mr Richardson was equally scathing of both major parties for failing to sell the need for spending cuts and tax increases to narrow the deficit.

He also reserved particular criticism for Treasury and the Department of Finance for their 2013 Pre-Election Fiscal Outlook (PEFO), which he dubbed the "Pixies, Elves and Fairies Outlook".

"PEFO ignored the specific promises to spend a lot more and relied on that overarching promise to keep spending on a tighter rein," he said.

"That meant there were large, unidentified savings implicit in what both sides were taking to the election."

Mr Richardson cited funding commitments such as the National Disability Insurance Scheme and Gonski school funding reforms, while there was a budget commitment to limit spending growth to inflation plus 2 per cent, without specific plan of how to achieve that limit.

He is hoping that Treasury will be a lot braver and more honest in this year's pre-election assessment of the Federal Government's finances, so that the election can be fought on the basis of a realistic set of numbers.

Debt to rise above levels that 'triggered previous downgrades'

Credit ratings agencies are also hoping to see concrete moves by the Government to narrow the deficit in the budget, with Moody's recently warning that tax increases would be needed in addition to spending cuts.

Mr Richardson said Australia does not deserve to lose its AAA credit rating, given relatively low Government debt compared with international peers, but a downgrade over the next couple of years is not impossible.

"Our projections would actually have net debt, net federal debt, as a proportion of national income rising to close to 20 per cent of that income and really only tailing away very slowly," he observed.

"That's a higher level than has triggered previous downgrades from AAA ratings in Australia."