Treasurer Joe Hockey says the federal budget will be used as a "shock absorber" to protect the economy from the largest fall in the terms of trade since 1959, while insisting he never set a firm date for the economy to return to surplus.

And Mr Hockey, who will unveil a larger deficit in 2014-15 and a slower return to surplus when he releases the midyear economic update on Monday, said economic growth would remain about 2.5 per cent, while conceding unemployment would rise to levels higher than those forecast in the May budget.

The Treasurer also promised to have a national conversation in 2015 about the economic and demographic challenges facing Australia over the next 30 to 40 years, while lashing Labor and the Greens for "mindlessly" opposing the government's economic strategy, at a cost of billions of dollars to the budget bottom line.

The May budget forecast a budget deficit of $29.8 billion in 2014-15 which would eventually fall to a deficit of $2.8 billion by 2017-18 and strong surpluses of 1 per cent of GDP by 2024-25. But those forecasts have now taken a big hit, with Deloitte Access economics director Chris Richardson recently warning deficit could blow out by as much as $35 billion by 2017-18.

Mr Hockey said on Sunday that the economy was facing severe "external headwinds", particularly in relation to iron ore prices.

"Twelve months ago, iron ore was at $120 a tonne," he said. "There were market expectations it would fall to $95 a tonne. We budgeted $92 a tonne. It's currently $63 and we are forecasting that it will remain around $60 a tonne for the foreseeable future. That more than 30 per cent fall in iron ore prices has had a big impact on the budget, as has a 15 per cent fall in thermal coal and a 20 per cent fall in wheat prices since the budget. As a result, the forecast decline in the terms of trade this year is the largest since records were first kept in 1959.

"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. 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."

"We expect growth to remain around 2.5 per cent but strengthen to 3 per cent over the next few years. We expect unemployment to continue to grow, obviously, 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 ... if we had the same settings as the last year of the Labor Party in government, unemployment would be at over 7 per cent and more than 110,000 Australians would not be in a job.

"To have the biggest fall in terms of trade in 50 years and still have employment growth strong, to still have an economy running at around 2.5 per cent, that is an indication that the key parts of our economic action strategy are working but there's still more work to be done."

While the terms of trade have fallen, the budget bottom line has also taken a hit from the tens of billions of dollars in unpopular savings proposed by the government in May that have been blocked in the Senate by Labor, the Greens, the Palmer United Party and other crossbench senators.

"I say to the Labor Party, the Greens and the independents, if you want to see the Australian economy cope better with the challenges that are beyond our control, work with us to strengthen the Australian 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," Mr Hockey said.

He brushed aside suggestions that he would have broken a promise if the budget did not return to surplus by 2018.

"I never set a target. That was implied by the Labor Party. We're not going to make the same mistakes that the Labor Party made. Trust me we don't do that," he said.

Mr Hockey said the next budget would provide a "flexible but properly targeted" package of support for families while also highlighting the rollout of Coalition infrastructure projects and predicting a "significant increase in the number of houses and units constructed in Australia over the next 12 months".

"You'll see our families package in due course, but we want to make sure it facilitates greater workforce participation, particularly by women, and also the family package needs to be flexible," he said.

"In 2015 we will be having a conversation with the Australian people about the challenges that lie before our nation over the next 30 to 40 years. The intergenerational report will be an opportunity to engage in that conversation with the Australian people and to give them the chance to identify with policies that are going to help strengthen the Australian economy for the long-term and deal with structural problems we have such as an ageing population and the very positive opportunities associated with growth in Asia."

In opposition, Mr Hockey and the Coalition committed to a surplus in the first year and then the first term of the Abbott government.

But during the 2013 election campaign the Coalition backed away from that pledge as the budget continued to deteriorate under Labor.

Shadow treasurer Chris Bowen said the key problem was not falling iron ore prices but Mr Hockey's "unfair" budget, which he said had rattled consumer confidence.

Speaking in Sydney, Mr Bowen branded the Treasurer a hypocrite for describing the budget as a "shock absorber" for the economy – a line Mr Hockey used to blast former Labor treasurer Wayne Swan for using.

"This was a comment that Wayne Swan used to make, and Joe Hockey used to get all furious. Now, exactly the same term is being used by the Treasurer," he said.

Regarding Mr Hockey's claim he had never put a date on a future budget surplus, Mr Bowen said: "Does he think the Australian people were asleep at the last election campaign when the now PM and Treasurer went around the country promising a return to surplus?"

He said Mr Hockey had to "walk away from his budget and start again" because the budget – and the government's failure to get it through the Senate – had hit consumer and business confidence, which in turn had pushed up unemployment.

- with David Wroe