Prime Minister Scott Morrison says tighter coronavirus restrictions in Victoria will lead to as many as 400,000 people losing their job or seeing their hours reduced to zero and a 10 per cent national jobless rate by year's end.
The revised Treasury forecast is for a reduction in real gross domestic product in the September quarter of up to $12 billion.
"This is a heavy blow - a heavy blow," Mr Morrison told reporters in Canberra on Thursday.
Having delivered a budget update on July 23, Treasury has had to revise its figures in the wake of a surge of coronavirus cases in Victoria that led to unprecedented lockdowns of businesses and community activity.
The budget update's unemployment peak forecast of 9.25 per cent has been revised up to 10 per cent.
The effective unemployment rate, which measures not only people without a job but people with zero hours who are on government support, was expected to be in the "high 13s", Mr Morrison said.
The prime minister said he and Treasurer Josh Frydenberg were considering "further issues" around the JobKeeper wage subsidy, which has already been extended beyond its September cut-off but set to taper off in size.
But he said there were already many measures to stimulate the economy.
"If there are measures that need to be brought forward they will be brought forward," Mr Morrison said.
The October 6 budget would tackle issues including industrial relations and skills reform, energy supply, manufacturing and infrastructure.
"Today's news about the economic impact is devastating but I can tell you in terms of Australia even with these hits we are doing better than many and most," he said, specifically noting the downturn in Spain, France, the UK and Sweden.
"Australia is doing better and we will keep doing better if we keep sticking together."
Australian Associated Press