Mr Swan said that as a consequence of the global financial crisis, tax receipts would be "smashed", coming in around $40 billion lower over the forward estimates than was anticipated at the time of the May Budget.

"Global economic conditions have changed dramatically in recent months as the global financial crisis has entered a dangerous new phase," Mr Swan said.

Mr Swan said the sharp deterioration in the global economic outlook, and the resulting fallout for the Australian economy, is forecast to result in more moderate GDP and employment growth.

Real GDP growth has been revised down to 2pc in 2008-09, 0.75 of a percentage point lower than was expected at Budget.

The unemployment rate is forecast to rise to 5pc by the June quarter 2009 and 5.75pc by the June quarter 2010, as the impacts of the global financial crisis flow through.

"In the face of these major challenges arising from the global financial crisis, the Government is continuing to budget for surpluses in 2008-09 and across the forward estimates," Mr Swan said.

"An underlying cash surplus of $5.4 billion is forecast for 2008-09."

He said the budget surplus projections were clearly much lower than were forecast at the time of the May Budget and reflect the dramatic impact, particularly from 2009-10 onwards, of the recent escalation in the global financial crisis.

"Almost all of the decrease in the surplus beyond 2008-09 is due to the significant reductions in revenue associated with the global financial crisis.

"Policy decisions have had relatively little impact on estimated expenses and revenues in these years."

He said while Australia was not immune from the effects of the global financial crisis and the global downturn, it was better placed than most other countries to withstand the fallout.

"More than 30 financial institutions around the world have failed or been bailed out, and globally stock markets have suffered significant losses.

"All members of the G7 group of advanced economies have now experienced negative growth at some time during 2008."

Road and rail spending under the Rudd Government will fall well below what the Coalition committed in government under the revised Budget estimates released today, Leader of The Nationals and Shadow Transport Minister, Warren Truss, said. (See separate story).

The Mid-Year Economic and Fiscal Outlook is available at: http://www.budget.gov.au