Treasurer Wayne Swan says a massive drop in expected revenue has caused the Government to slash its forecast Budget surplus from over $21 billion to around $5b.

Unemployment figures have also been revised up, with the jobless rate expected to hit 5 per cent by the middle of next year, while growth is expected to slow to 2 per cent.

Releasing the Government's Mid-Year Economic and Fiscal Outlook, Mr Swan said the global financial crisis had "smashed" a $40 billion hole in Budget revenue.

"There's no point in trying to sugarcoat these figures," he said.

"The Budget has felt the full force of the global financial crisis."

Mr Swan said although Australia was still well placed to deal with the crisis, "there could be more to come".

The forecast GDP for 2008-09 is now at 2 per cent, which is down 0.75 per cent from May.

Unemployment is set to rise to 5 per cent in June 2009 and is forecast to rise to 5.75 per cent in June 2010.

Inflation has been forecast at 3.5 per cent for 2008-09, which is up from 3.25 per cent forecast in the May Budget.

The Budget surplus, which was set at $21.7b in May has now been revised down to $5.4b for 2008-09, which is 0.4 per cent of GDP.

The Budget forecast for 2009-10 has also been revised down from $19.7 billion to $3.6 billion.

Mr Swan says the decreased forecast surplus is due to "massive reductions" in tax revenue, with tax receipts revised down by $4.9 billion in 2008-09, $12.2 billion in 2009-10, $12.4 billion in 2010-11 and $7.9 billion in 2011-12.

"These are all a direct consequence in what's occurred in global equity markets and the impact of that on capital gains tax, the impacts of credit market turmoil, weaker global growth and the falling terms of trade," he said.

Mr Swan says the figures are a dramatic reminder that the country is not immune from global financial market turmoil.

He also says the Government remains committed to reforming the pension system but there may be "tough decisions to be made" around other areas such as infrastructure.

"Given the new circumstances we are going to have to cut our cloth to suit those circumstances and we're not going to be able to do the wishlist that many people have for us to do - it's just that simple," he said.

The outlook report says the crisis continues to present a serious risk to Australia's economic outlook and the final impact of recent international events remain difficult to assess.

It also says China's economic outlook will remain crucial for Australia if its demand for exports slows more than expected.

In December over $8 billion of payments will be made available to pensioners and families as part of the Government's $10.4 plan to stimulate the economy, announced last month.

Mr Swan says the figures show the Government had to act quickly.

"Today's figures make it pretty clear that the economy was crying out for the boost that the Government delivered, now backed up by an easing of monetary policy from the Reserve Bank," he said.

Yesterday the Reserve Bank of Australia slashed interest rates by a further 75 basis points, bringing the official cash rate down to 5.25 per cent.

Opposition Treasury spokesperson Julie Bishop says the Government cannot blame everything on the global financial crisis.

"Of course Australia is not immune from the impacts of the global financial crisis but conditions have been made worse in this country by the Government's misreading of the economy throughout the year," she told ABC Radio's The World Today.

She has also accused the Government of preparing to renege on spending promises.

"The Government says everything's on the table - that's just code for saying that they're going to go back on whatever they said that they would do and they're now going to say because of the global financial crisis they're permitted to move a long way from responsible fiscal management," she said.