It trimmed spending to 119 trillion Iraqi dinars ($105 billion) for 2015. Even so, the budget deficit will rise to 25 trillion dinars.
The decision to lower the forecast oil price may satisfy some MPs who saw the previous estimate as unrealistic, but Brent crude is trading still lower at under $50, down from $115 in June.
Prime Minister Haider al-Abadi said last week he feared lower revenues from falling global oil prices could hurt Iraq's military campaign against Islamic State, which swept across northern Iraq last summer.
Speaking after a meeting of the U.S.-led coalition which has launched air strikes against IS in northern Iraq and Syria, Abadi said allies could help by potentially allowing Baghdad to defer payment for ammunition and weapons.
It was not immediately clear what areas would be affected by spending cuts in the revised budget, which still needs to be approved by parliament. A vote is expected on Thursday.
The government of former Prime Minister Nuri al-Maliki failed to pass a 2014 budget after relations between Sunnis and Kurds deteriorated.
The 2015 budget has become a measure of growing goodwill between Baghdad and the Kurdish region as they both fight Islamic State militants.
The budget has been delayed for months by sliding oil prices; it originally assumed an average oil price of $70 a barrel.