Public spending is set to fall to levels not seen since the 1930s, forecasters have predicted.
The warning, based on George Osborne's Autumn Statement, suggests the loss of one million public sector jobs by 2020.
A stamp duty cut for 98% of homebuyers announced by the chancellor on Wednesday has come into force.
But with the majority of spending cuts still to come, Lib Dem Vince Cable accused the Conservatives of wanting to reduce the deficit "brutally".
The business secretary said his coalition partners' plans were "simply not realisable".
The three largest Westminster parties have been accused of being unclear about how they would reduce borrowing by closing the gap between tax revenues and spending in the next Parliament.
However the Office for Budget Responsibility (OBR) in its report accompanying the chancellor's statement said public spending would fall from from £5,650 per head in 2009-10 to £3,880 in 2019-20.
The BBC's head of statistics Anthony Reuben said public spending as a proportion of gross domestic product was projected to fall to 12.6% in 2019-20, its lowest level since the 1930s.
Described by OBR chairman Robert Chote as a "very sharp squeeze", some 60% of this reduction is forecast to come in the next Parliament.
Mr Osborne accepted on Wednesday that the budget deficit - due to be more than £90bn this year - was not closing as fast as he had hoped.
But he said it had been halved since 2010 and was still predicted to fall.
Shadow chancellor Ed Balls said he supported the change to stamp duty but that Labour would press ahead with the "mansion tax" on properties valued above £2m.
He told ITV's Good Morning Britain his party would also have to make public spending cuts if they gained power next May, but added that they would make "fairer" choices.
CBI director general John Cridland said the government would have to be "much more imaginative" about how it makes further spending cuts.
"Most of what we've done in this parliament, frankly, has been efficiency savings, cuts in head count, controls on pay," he told BBC Radio 4's Today programme.
"If you're going to make the cuts we now need to make you've got to be far more lateral, you've got to re-engineer the whole model."
One "way forward" could be a reduction in the number of government departments, he suggested.
Labour's Chris Leslie said the government should be focusing on what he called the "living standards crisis".
"If you have a low-productivity, low-wage economy then don't be surprised if you're not bringing in those tax receipts," said the shadow chief secretary to the Treasury.
Chief Secretary to the Treasury Danny Alexander defended the government's record after Labour accusations its budget promises were "in tatters".
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Ed Balls MP: "Every target missed, every test failed, every promise broken"
The Lib Dem cabinet minister said the coalition had been right not to stick to its targets after economic problems in the eurozone had affected the UK.
"The impact of the financial crisis on our own domestic economy also was greater than we expected," he said.
"And I think we made the right call, which was to say we've set out a plan and we're going to stick to it, but we're not going to chase our tails on the numbers every time the forecast changes."
MPs were told on Wednesday that growth was set to be 3% this year, higher than Germany, but falling to 2.3% by 2019.
The Autumn Statement - called the pre-Budget report under the last Labour government - is a chance to set out future tax and spending plans as well as set out the state of the nation's finances.
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George Osborne tells MPs stamp duty changes will benefit 98% of homebuyers
The headline-grabbing announcement on stamp duty means no tax will now be paid on the first £125,000 of a property.
Above that level, the levy will go up in proportion to the sale price.
The Treasury said someone buying a property at the average family home price of £275,000 would save £4,500, while a £2.1m purchase would carry £18,750 more stamp duty compared with the old system.
The OBR chairman, Mr Chote, said the reform could put up house prices in some areas, predicting they would rise where the tax had fallen, and fall where it had risen.
Mr Osborne said the tax cut, which is UK-wide until April when stamp duty is devolved to Scotland, was worth £800m a year.
But Mark Littlewood, from the free-market Institute of Economic Affairs think tank, said most of Mr Osborne's announcements were "fiddling at the edges" and that deep cuts should follow.
"My guess is that the chancellor is hoping that a 'steady as she goes' message will be enough to get him re-re-elected and back in Number 11 after the next election.
"But if that does happen he's going to have to take some much more radical action than he has promised [on Wednesday]."
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