The price has collapsed from $120 per tonne in 2013 to around a third of that in recent weeks, taking budget revenue forecasts down with it.

Mr Hockey has told The Australian Financial Review that the Government is contemplating a price-per-tonne of just $35, which could mean a revenue write-off of up to $25 billion over the next four years.

That would lead to a further blowout in the budget deficit, which in December was forecast to be $40.4 billion this year and $31.2 billion next financial year.

"There's no doubt it has an impact on our budget because iron ore has been our biggest export," Mr Hockey told ABC News Breakfast this morning.

"But we are not going to chase the fall in revenue associated with falling iron ore prices down.

"We're not going to be imposing new taxes in order to try and recover that lost revenue."

The Government has already signalled it is looking at a so-called Google Tax to ensure multi-national companies pay more tax in Australia and a tax on bank deposits.

And the spending already flagged for the May 12 budget —a tax cut to small business of at least 1.5 per cent and a families package to ease the cost of childcare — will be paid for with modest savings.

"We are endeavouring to do more with less," Mr Hockey said.

"We have to pay for these initiatives so we'll have reasonable savings that will not hurt the family budget, but at the same time we are going to spend money that should be appropriately spent to make sure the economy continues to grow."

He said in drawing up this year's budget, the Government will stick with its structural reform agenda but will not "arm wrestle" the easing monetary policy set by the Reserve Bank, which has been gradually lowering interest rates.

"We've got to be able to have a very clear, predictable trajectory back to surplus based on reducing expenditure and living within our means," Mr Hockey said.

Shadow treasurer Chris Bowen criticised Mr Hockey for, while in opposition, failing to acknowledge similar revenue write-downs that plagued the previous Labor government and called for a "sensible" debate about the effects on the budget now.

"Obviously if the iron ore price continues to fall it has impacts on production decisions, it will have an impact on the Australian dollar which then has flow on effects elsewhere," he told the ABC's AM program.

"All of these things are real."