In an extraordinary move at odds with repeated Coalition warnings of a debt crisis spiralling out of control under the previous Labor government, Mr Hockey has announced the current debt ceiling of $300 billion will be increased in a single leap, to $500 billion.

Cabinet signed off on the new limit on Tuesday which will be legislated when Parliament returns in November.

Cabinet also signed off on the terms of reference and personnel of its long-promised Commission of Audit of all government spending, with Mr Hockey arguing it will do the work of winding back the debt.

In decision certain to raise concerns over its level of influence over government policy, the audit will be headed up by Tony Shepherd, chairman of the most influential lobby group for the big end of town, the Business Council of Australia.

Also on the board will be ex-Howard Government minister Amanda Vanstone, former top public servant Peter Boxall, former Treasury Secretary Tony Cole and former top WA bureaucrat Robert Fisher.

The make-up of the audit and the tight timelines of less than six months have fuelled concerns of a sharp contraction of some programs.

Mr Shepherd's organisation has previously advocated radical business-friendly policies such as increases to the GST.

Mr Hockey brushed off concerns that the Government's promised Commission of Audit will be overly influenced by the BCA.

Finance Minister Mathias Cormann, said the Audit would report quickly with phase 1, examining efficiency and effectiveness of spending, delivered to government by January and phase 2 looking at public sector performance , reporting by March.

Economists say the debt limit is not, of itself, expected to affect Australia's Triple A credit rating and that it simply reflects the reality that during a global downturn, government spending has exceeded revenues.

However the scope of the new borrowing limit has prompted speculation that the government may be planning extra borrowings to fund major "off-budget" infrastructure projects mirroring the way the NBN has been financed.

Labor's finance spokesman Tony Burke slammed the devt-ceiling lift.

"The party that said they were all about turning around debt has now asked for permission for it to go to half a trillion dollars," he said.

Mr Burke said the announcements were a breach of promise.

"What Joe Hockey is now doing on both the commission of cuts and on the issue of the debt ceiling is a million miles away from the expectations he gave the Australian people before the election," he said.

Mr Hockey blamed the radical increase on "the legacy of a bad Labor government".

He said it had been made necessary because the current debt limit would have been reached by December 12, this year, on the way to around $400 billion over the four-year budget period.

By its own admission, the Government wants to jack the limit up once only, thereby removing the need to bring another debt ceiling hike to the Parliament closer to the next election.

Insiders say the prospect of trying to convince "economically illiterate" independent senators of the need for the increase, may have been a consideration.

In an abnormally brief press conference Mr Hockey offered no detailed explanation of the debt increase. "We are increasing it to that level because I've been advised that on 12 December, the current debt limit of $300 billion will be hit," he said.

"We need to move quickly to deal with this particularly in the wake of what's been revealed in the United States in recent times.

"We need to put it beyond any doubt and we do not want to have to revisit this issue again."

The last debt ceiling increase was just a quarter of the new increase at $50 billion.

Mr Hockey said it was important to have what he called "a buffer of $40 to $60 billion to provide stability".

"We have decided to go to $500 billion. This is the legacy of bad Labor government and this is part of the job that we have to fix."