Australia unveiled Friday a pre-election mini-budget that includes a controversial plan to tax bank deposits, warning the budget deficit had blown out to Aus$30 billion and revenues were shrinking.
The government also cut its growth outlook for the fiscal year to June as the mining-driven economy struggles to cope 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 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, he stuck to the government's plan to return a surplus in 2016-17.
Bowen 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. However, 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 underway," 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."
In a bid to plug the hole being left by its huge revenue shortfall Bowen this week the government announced a plan to hike tobacco taxes by 12.5 percent per year over the next four years, which is set to raise more than Aus$5.0 billion.
And on Friday he 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 its 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.
Australian Bankers Association chief Steven Munchenberg said Australians' savings were already well protected by the country's robust and secure banking system.
"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," he said, indicating the extra costs borne by banks would most likely be passed onto customers.
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."
Friday's statement has added to speculation that Prime Minister Kevin Rudd could call an election this weekend for September 7, having now outlined fresh budget numbers as well as new polices on key issues including asylum-seekers and Labor party reform.
Polls must be held before the end of November.
"We are in election season. The election is due. It'll be called soon enough," said Bowen when questioned on a date ahead of the statement's release.