Treasurer Joe Hockey says Australia is facing a “challenging fiscal and economic mountain” but has vowed the federal government will bring the budget back into shape.

Hockey on Tuesday handed down the mid-year economic and fiscal outlook (MYEFO), which showed the government was facing budget deficits of more than $120 billion over the next four years.

He said unless action was taken, the budget would be in the red for at least ten years, but it was important the government was honest about the challenge.

“I want to emphasise that no challenge such as this is insurmountable,” Mr Hockey told the National Press Club.

The Abbott government had gone to the election promising to get the economy and budget back on track, and it wouldn’t stray from this path, he said.

Hockey said they would deliver a strong economy, but they’d need the support and active involvement of the Australian community.

Hockey said it was a realistic stocktake of the economy and the federal government’s books.

Economic growth is forecast to remain below trend of three per cent for the next two years as the unemployment rate continues to rise to 6.25 per cent.

Hockey said the Coalition had inherited gross debt that would reach $460 billion within the next four years.

“Unless we take very substantial budget reform, it will rise to $667 billion over the next decade,” he said.

Hockey said he was drawing on the budget numbers the coalition had inherited.

Returning the budget to sustainable surpluses would not be achieved by piecemeal savings here and there.

It would require a sustained and fundamental structural overhaul of expenditure, he said.

Without a significant improvement in productivity growth, the declining terms of trade and the ageing of our population meant that Australia was facing the slowest decade of national income growth since the national accounts were first introduced in the 1950s.

“That is not acceptable to the Coalition,” Hockey said, adding doing nothing to both the budget and the economy was not an option.