SYDNEY: Australia's election-year budget woes deepened Tuesday, with the government downgrading revenue forecasts by a further Aus$5 billion (US$5.1 billion) as the nation's mining boom comes off the boil.
Finance Minister Penny Wong said government income was now expected to be Aus$17 billion less than originally expected due to the persistent strength of the Australian dollar despite softer commodity prices.
"The Treasury and the government are facing the challenge of a situation which has not really happened before, and that is the dollar staying stubbornly high despite what we call the terms of trade -- that is, the prices of the things we sell to the rest of the world -- coming off," Wong told Sky News.
"That rather unusual set of circumstances is driving this very large shift in profits, the downward shift in profits. So firms are earning less profits and therefore a reduction in revenues to government."
It is the second substantial increase in estimated writedowns unveiled by the centre-Left Labor government in as many weeks, with Prime Minister Julia Gillard last Monday upgrading the shortfall from Aus$7.5 billion to Aus$12 billion.
Wong described the Aus$17 billion slump as "very significant".
It is an unwelcome development for Gillard's government as Labor prepares to seek a third term from voters on September 14, with next week's budget likely to contain significant spending cuts.
Gillard is unpopular with the electorate and on track to lose to the Tony Abbott-led conservative opposition, according to opinion polls.
Her government slashed spending by Aus$33.6 billion last year, principally from the defence and foreign aid budgets, in a bid to return to a surplus this year -- a much-vaunted promise it was forced to abandon in December.
A slowdown in top export market China saw commodity prices slump, hitting the key mining sector, and the Reserve Bank of Australia expects investment in the resources industry to peak this year, forcing a tough economic transition.
Australia's Asia-driven mining boom helped it dodge recession during the global financial crisis, masking underlying weakness in other industries partly caused by the commodities-linked inflation of the dollar.
Gillard warned last month that the "extraordinary revenues" of the boom were a thing of the past and the current picture was "in part, a return to normality" as Australia diversifies away from mining.
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