CANBERRA Australian Prime Minister Julia Gillard, well behind in opinion polls for elections in September, has ruled out a major spending spree to win back voters, conceding that the stubbornly high Australian dollar has put a A$12 billion hole in government revenue forecasts.
Gillard's struggling minority government will on May 14 deliver its final budget before the September elections, with economists expecting the government to unveil a deficit of between A$10 billion ($10.3 billion) and A$25 billion.
In a pre-budget speech, Gillard ruled out major spending to try to win back favor with voters, saying instead that the budget would underpin jobs and economic growth and outline a plan to return to surplus budgets on average over the economic cycle.
"The persistent high dollar, as well as squeezing exporting jobs, also squeezes the profits of exporting firms: With lower profits for these companies comes lower company tax going to Government," Gillard said on Monday.
"We can't assume this will change soon."
Australia's dollar has traded above parity with the U.S. dollar for most of the past two years, putting pressure on Australia's manufacturing industry and pushing down prices of imports, which has weighed on company profits.
At the same time, Gillard said the government could no longer rely upon higher revenue from the country's mining boom.
TD Securities head of research Annette Beacher said she expected the budget deficit for the year to June 30 to be around A$25 billion, or 1.7 percent of GDP, presenting no threat to Australia's top creditor status.
"At this stage, we expect a return to balance by 2014/15, preserving the AAA/stable rating," she said.
Opinion polls show Gillard's minority government, which governs with support from the Greens and independent lawmakers, will be swept from power at elections set for September 14, despite Australia's 21 years of uninterrupted economic growth.
Australia avoided recession during the 2008 global financial crisis, but hefty stimulus spending meant the Labor government, first elected in late 2007, has been unable to deliver a surplus in its five budgets.
Conservative opposition leader Tony Abbott said the government was making new excuses for its bad management.
"This government doesn't have a revenue problem, it simply has a spending problem," Abbott said, adding government spending had outstripped revenue by A$30 billion since 2007.
Gillard said any new government spending in the coming budget, particularly on education and support for the disabled, would be countered by cuts in other areas, adding her government would not cut spending "to the bone" and jeopardize growth.
But she said the government would look at all areas for possible cuts, including areas where the government has previously ruled out lower spending.
The Australian Greens used the speech to renew their call for higher taxes on the mining industry, including the abolition of around A$4 billion a year of tax rebates on diesel fuel used at mine sites.
The powerful mining industry has started a new television advertising campaign to warn against higher taxes on the industry at a time of lower coal and iron ore prices.
($1 = 0.9721 Australian dollars)
(Reporting by James Grubel; Editing by Eric Meijer)