Australia's Treasurer Joe Hockey on Thursday warned of 'massive cuts' if Labor continues to blocks debt increase in the Senate. The present Aus$ 300 billion ceiling will be breached on Dec 12 and the Coalition minister warns a US-style shutdown is a distinct possibility if the opposition Labor does not agree to lift the nation's debt ceiling to Aus$ 500 billon. A bill to raise the ceiling has been cleared the House of Representatives on Wednesday evening, but the stand-off continues in the Senate.

Labor partnered the Greens in the Senate on Wednesday, to amend the government's bill, agreeing to provide Aus$ 100 billion increase to the Aus $300 billion current debt ceiling level. They, however, denied, government demand to raise the debt ceiling to Aus$ 500 billion.

Having failed in the Senate, the amended bill will now be returned to the House of Representatives.

Speaking on ABC radio, Hockey called Labor's attitude as "playing games" which could force the new government hands to take drastic action which may include cutting welfare and health-related payments.

"We've inherited this mess ... there is no choice, if Labor prevents an increase to the debt limit, there is no choice to having massive cuts to government expenditure," he said.

"If they want to own the cuts to the budget they will own them," Hockey said.

"I will not put in place a budget that has a bigger debt than the debt limit and therefore the Greens and Labor will be responsible for the very significant cuts that will need to be made."

"The Labor Party is now playing a game of Russian roulette," he said.

"But what they don't understand in relation to debt limits is that the barrel is fully loaded. If they choose to pull the trigger, there's only one outcome for them. But the problem is, there will be ancillary pain for the Australian people." Mr Hockey said.

Shadow treasurer Chris Bowen, meanwhile, accused M Hockey of "confecting" a crisis.

Accusing Mr Hockey of behaving "like a B-grade actor," Mr Bowen said the Aus$ 400 billion debt ceiling was sufficient.

"We are not going to give them a blank cheque for half a trillion dollars."

"This is a Liberal Party which campaigned to bring down the debt," he told reporters, asking the government to justify why the cap should be raised so much.

"They should release their economic statement and until they do it, we would only approve an increase of $100 billion, which is more than enough -- certainly to get them through this year," Mr Bowen said.