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Australians warned of huge hit to budget revenues


Australian Treasurer Wayne Swan on Sunday warned a high dollar and lower terms of trade had led to a Aus$7.5 billion (US$7.7 billion) "sledgehammer" hit to budget revenues.

Swan is due to hand down his annual budget next month ahead of national elections in September, having only in December abandoned his strident and long-held vow to return it to surplus this year.

He said the country was now facing some of the most challenges circumstances it had seen in decades, describing lower terms of trade -- the value of exports measured against imports -- and a high dollar as a "unique economic event".

The upshot was a dramatic impact on the profitability of companies and prices more generally in the economy, particularly for Australia's key mining products.

"And as a consequence of that, that's caused a hit, if you like, a sledgehammer to revenues in the budget since the mid-year update of something like $7.5 billion," he told ABC television.

"Of course the impact won't just be in this financial year, it will also be across the forward estimates.

"This is one of the reasons why I made the point at the end of last year that we were unlikely to return to surplus in 2012-13 because of this hit, if you like, to revenue from the high dollar and the lower terms of trade."

With the challenging conditions, Swan reiterated his focus was on protecting jobs -- with unemployment climbing to 5.6 percent in March -- and supporting growth in the upcoming budget.

"If you've got this hit to revenue we shouldn't be seeking to make up for it by savage cuts across the budget," he said.

"That would not support jobs and growth and it would lead to higher unemployment.

"So our approach is very clear -- in this budget we will support jobs and growth, we'll make the smart investments for the future and we'll do that within the context of a responsible medium-term fiscal policy."

With a slowdown in Chinese economic growth having a knock-on effect for Australia's crucial commodities sector, the country is also facing a painful transition away from the key mining sector as the investment peak looms.

The economy grew 0.6 percent in the three months to December as exports lifted, but analysts have warned of a subdued picture overall.

Australia is due to hold elections on September 14 and Swan's ruling centre-left Labor party is trailing badly in opinion polls, with the conservative opposition accusing it of reneging on key promises.