Australia said on Friday its budget deficit has blown out to Aus$30 billion and revenues are shrinking, as it unveiled a pre-election mini-budget that includes a controversial plan to tax bank deposits.
The government also cut its growth outlook for the fiscal year to June as the mining-driven economy grapples with a slowdown in China that has seen commodities prices tumble.
With national polls approaching, Treasurer Chris Bowen said tough conditions had seen a further Aus$33.3 billion wiped off revenue estimates over the next four years.
This, he said, had forced the ruling Labor party into $17.4 billion of "responsible savings".
The statement's release added to speculation that Prime Minister Kevin Rudd could call an election as early as this weekend, having now outlined fresh budget numbers as well as new policies on a raft of key issues.
Polls must be held before the end of November, with the Tony Abbott-led conservative opposition expected to narrowly win, although Rudd has clawed back significant support for Labor since ousting Julia Gillard in June.
In its statement, the government also upped its forecast unemployment rate in 2013/14 by 50 basis points to 6.25 percent.
However, while the budget deficit for this fiscal year had ballooned from the Aus$18 billion forecast in the May budget, Bowen stuck to the government's plan to return a surplus in 2016-17.He said the fall in commodities prices sparked by weakening growth in key export market China meant Australia's economy would grow 2.5 percent in July-June, slower than the 2.75 percent forecast in May. It is expected to rise to 3.0 percent in 2014/15.
"The transition in the resources sector from a record investment boom to strong growth in production and exports is currently under way," he said.
"This will mean that non-mining sectors of the economy will need to lead growth in the future. This transition poses challenges for the economy."
AMP chief economist Shane Oliver said he was stunned at the scale of the deficit and speed at which it had worsened.
"I'm shocked by how much it has deteriorated," he said, adding that the promised return to surplus has been repeatedly delayed.
"We seem to keep pushing out the return to surplus and the return to surplus gets steeper and steeper as time goes by," he said.
In a bid to plug its revenue shortfall the government this week announced a plan to hike tobacco taxes by 12.5 percent per year over the next four years, to raise more than Aus$5.0 billion.
And on Friday Bowen said he will also tax bank deposits up to Aus$250,000 at 0.05 percent from 2016, raising a forecast Aus$733 million in the first 18 months.
Bowen said the cash would go into a new Financial Stability Fund, but will be counted as revenue in the budget, to protect savings in the event of a bank collapse.
"It'll be quarantined from the rest of the budget and just put aside in case there's ever a need with a bank getting into trouble in Australia," he said. "It hasn't happened in Australia for quite a while, but we can't be complacent."
He said the levy had been recommended by the Reserve Bank of Australia, the International Monetary Fund and the Australian Prudential Regulation Authority, but the banking industry said it was not necessary.
"This is simply a cost on Australians that is not really going to deliver any benefits in terms of what is already a very stable and safe system," said Australian Banking Association chief Steven Munchenberg.
Bowen insisted the government had struck the right balance between savings and spending.
"The task of government continues to be to drive efficiencies and to find savings which are real and sustainable," he said.
"We've made revenue decisions and we've made spending decisions ... we've struck the right a balance."