Australians warned of 'dramatic' budget plunge

Australian Treasurer Wayne Swan on Sunday warned of a "dramatic" hit to the government's bottom line due to commodity price falls, steeling voters for an austere budget in an election year. Swan said government revenues had taken a "massive hit" from a plunge in its terms of trade -- the value of exports measured against imports -- with prices for its key mining products down but the Australian dollar remaining high. "This has contributed to subdued prices pressures and weaker profitability across the economy, which means that nominal GDP -- the value of the goods and services we produce -- has grown more slowly than real GDP for three straight quarters," said Swan in his weekly economic note. "This run is unprecedented since records began." Swan said revenues were Aus$6 billion (US$6.24 billion) lower than had previously been forecast for the first seven months of the financial year to June 30 "primarily due to the impact of lower corporate profits". He is due to hand down the budget in May. "While revenue has taken a big hit, the monthly financial statements also show that government expenditure is running slightly below our forecasts," he added. "This further highlights that the dramatic hit to the budget bottom line is being driven entirely by lower-than-expected revenues, while the government continues to exercise spending restraint." Australia is due to go to the polls on September 14 and the ruling centre-left Labor party is trailing in the polls, with the conservative opposition accusing it of reneging on key promises. In December Labor abandoned a strident and long-held vow to return the budget to surplus this year, with China's slowdown throwing cold water on Australia's financial crisis-beating growth. Australia is also facing a painful transition away from the key mining sector as the investment peak looms, highlighting soft patches in the economy. The economy grew 0.6 percent in the three months to December as exports lifted, but analysts have warned of a subdued picture overall, despite jobs data released on Thursday showing employment growth at a near 13-year high. Canberra has flagged growth of 3.0 percent for the fiscal year ending June 30. The Reserve Bank of Australia, which held interest rates at a financial crisis low of 3.0 percent this month, puts it at a more moderate 2.5 percent for the same period.