China slowdown and low wage growth to 'wipe $40b from budget'

The economic slowdown in China and record low wage growth will see almost $40 billion wiped from the federal budget over the next four years.

Today's Midyear Economic and Fiscal Outlook is expected to reveal that income tax revenue will be down $15 billion due to low wage growth, The Daily Telegraph reports.

Low iron ore prices will account for another $23 billion in revenue writedowns.

Despite the enormous drop in revenue the Turnbull government will need to find an additional $4-7 billion to fund new spending promises announced since the last budget.

Treasurer Scott Morrison has previously stated that the government will present an honest budget and warned voters some of the numbers will not be pretty.

Deloitte Access Economics' chief forecaster Chris Richardson said that a surplus was now in a "galaxy far away".

"The Senate could pass everything, the states could ­decide to ask for no more money and we still wouldn't get to surplus, ever," Mr ­Richardson said.

"There are good signs with tax reform and with competition reform but we still need a plan for budget repair."

Mr Richardson said that while the economy was "doing okay" the budget was not and the task of repairing it continues to get bigger.

The revenue writedowns in income tax takings and low commodity prices are expected to push the deficit from $35 to $40 billion.