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FACTBOX-Key political risks to watch in Australia

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(Globalpost/GlobalPost)

By James Grubel

CANBERRA, Feb 1 (Reuters) - Prime Minister Julia Gillard has set national elections for Sept. 14 this year, surprising voters by giving eight months notice of the poll.

Calling the date was intended to end political uncertainty surrounding her struggling minority government, but by kicking off a long campaign she has given up the chance to catch opposition leader Tony Abbott unawares with a snap early poll.

The election will decide whether Australia keeps its controversial carbon tax, and a 30 percent tax on coal and iron ore mining profits, which Abbott has promised to scrap if he wins power.

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Following are the key political risks to watch:

YEAR OF THE LONG CAMPAIGN

Opinion polls show Abbott's opposition Liberal-National party is well ahead of the government and Gillard would be swept from office, losing up to 18 seats, if an election were held now. The government could lose power if it loses just one seat.

Still, aside from carbon and mining taxes, the government and opposition both support greater involvement with China, the country's biggest trade partner, and close defence ties with the United States.

Abbott has said the election would be a referendum on Gillard's credibility, which he has continually attacked, while offering few detailed policy alternatives.

What to watch:

- Manifesto promises and campaign pledges from both parties.

- Any fresh political blunder could severely damage Gillard's leadership and tempt nervous government lawmakers to her Gillard in favour of a more popular leader, though there is only minimal support for former Prime Minister Kevin Rudd.

- Any unexpected defection or retirement from parliament of a government lawmaker could trigger a by-election in which Gillard might lose control of a parliamentary majority. That would likely trigger a full election which could see Labor swept from office.

ECONOMY

The central bank has cut its growth forecasts for 2013 to just under 2.75 percent from 3 percent, warning the upsurge in the mining industry will peak earlier and at a lower level than previously expected.

Australia's $1.4 trillion economy grew 0.5 percent in the third quarter, or 3.1 percent for the year, but economists expect growth to slow into 2013, possibly to levels nearer 2 percent.

Unemployment rose unexpectedly in December, nudging the jobless rate up to 5.4 percent - still around half the rate in the euro zone - which pushed the local dollar down as the market narrowed the odds of further interest rate cuts in the coming months.

The Australian dollar, which has traded near 30-year highs above parity with the U.S. dollar for most of the past two years, plus rising costs and lower commodity prices, are hampering investment in the resources sector.

Latest data shows a record $280.5 billion in committed investment into resources projects, although higher costs mask a fall in the number of committed projects.

At its December board meeting, the central bank cut interest rates by 25 points to 3.0 percent, matching its post-global financial crisis low, to protect the economy from ongoing uncertainty.

What to watch:

- Any further falls in commodity prices could weaken Australian export revenue, see more resources projects shelved, and lead to job cuts in the resources sector.

- The world economy poses a downside risk with ongoing worries about Europe and U.S. fiscal policy, and growth in Asia dampened by slower Chinese growth and weakness in Europe.

BUDGET, MINING TAX

Slowing economic growth and lower commodity prices have hit tax revenues and forced Treasurer Wayne Swan in December to back away from his promise to deliver a surplus budget in 2012-13.

Further complicating the budget are projections for the controversial 30 percent tax on iron ore and coal mine profits, which began in July 2012. The mining tax is due to bring in A$2 billion ($2.10 billion) in the current financial year, but media reports suggest the tax raised no revenue in its first two quarters.

With a surplus forecast at only A$1.1 billion, any further cut in mining profits, or an economic slowdown, could force the government to make further spending cuts ahead of the May budget to shore up its economic credentials.

An independent tax review released on Nov. 30 also urged Swan to close a loophole which allows states to increase mining royalties and makes the national government refund the cost to mining companies. That could re-ignite a bitter and damaging public fight with miners BHP Billiton, Rio Tinto and Xstrata PLC, who helped draft the current tax.

What to watch:

- Any move to protect revenues by changing the mining tax, or by capping the royalty rebates to miners, could spark a new row with global mining companies, similar to the national campaign in 2010 which helped bring about the downfall of then-Prime Minister Kevin Rudd.

REFUGEE POLICY

When she toppled Rudd in mid-2010, Gillard promised to stop the steady stream of refugee boats arriving via Indonesia, but the number of boats and asylum seekers has increased.

Last August, the government revived the so-called "Pacific solution" refugee policy, and has since re-opened immigration detention centres in Nauru and Manus Island in Papua New Guinea.

Australia has also toughened the rules and now boat arrivals could wait in detention for up to five years, with no guarantee of settling in Australia even if their refugee claims are accepted.

However, thousands more people have arrived by boat since that policy was announced, and the government is under intense political pressure over the issue, particularly in crucial areas in suburban Sydney.

What to watch:

- More boat arrivals could further strain Australia's immigration detention system and put more pressure on detention centres on Nauru and Manus Island, which are still being developed but which could be full by early 2013.

- Any more policy shifts could expose Australia to more condemnation from rights groups and the United Nations High Commission for Refugees, and fuel divisions within Gillard's Labor government, as well as unsettle voters.

- The National Court in PNG is also hearing a challenge to the Manus Island detention centre, and any adverse ruling could throw the policy into confusion. (Editing by Daniel Magnowski)

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