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Day of Reckoning - Australia's Budget to Show Dire Deficit

Australian Treasurer  Wayne Swan
Eric Taylor | Bloomberg | Getty Images
Australian Treasurer Wayne Swan

Australia's economy is hitting a brick wall after 21 straight years of uninterrupted growth, and this will be made apparent on Tuesday when Canberra unveils its annual budget, which will likely show a big deficit and could risk the country losing its coveted triple-A rating, said experts.

Tuesday's budget, widely expected to be Treasurer Wayne Swan's last, has become one of the country's most eagerly awaited in Australia's recent history.

(Read More: Reserve Bank of Australia Cuts Rates to Record Low)

"Australia has had a great run, our economy has been almost bullet proof and our budget has done well really off the back of China... But China has slowed, [commodity] prices have come down and our budget has been revealed as in trouble," said Chris Richardson, director of Deloitte Access Economics, who is based in Sydney.

(Read More: Aussie Dollar at $1.30: Are You Kidding?)

After enjoying two-decades of growth, Australia has more recently been faced with a number of headwinds igniting concerns over future expansion. These include a strong domestic currency, slowing growth in its major trading partner China and weakness in mining, a sector which was behind much of Australia's economic strength in recent times.

"There have been a few years that Australia could rest on its laurels...we should have been moving back to a surplus," said Rob Henderson, chief economist of markets at National Australia Bank.

(Read More: Can Australia's Economy Survive the Mining Scare?)

Late last year policymakers backtracked on promises to return the Australian economy to a surplus of A$1.1 billion (US$1.09 billion) by June 2013. This goal now looks even further away as the government recently admitted it has collected billions less in tax revenues than it had hoped for.

A Reuters poll of 13 market economists predicted Swan will unveil a deficit of around A$17 billion for this financial year ending on June 30 and A$10 billion for 2013-14.

A big deficit figure could deepen concerns about Australia's credit rating following credit ratings agency Standard & Poor's warning last month that the country's coveted AAA rating is under threat if national debt keeps rising.

Prime Minister of Australia Julia Gillard with former Prime Minister Kevin Rudd in the background.
Getty Images
Prime Minister of Australia Julia Gillard with former Prime Minister Kevin Rudd in the background.

Make or Break?

Tuesday's budget could be a make-or-break for the government led by Prime Minister Julia Gillard, as the Australian Labor Party's popularity has decreased in recent times ahead of elections in September.

"They have spent in a reckless way and now the chickens are coming home to roost," Shadow Finance Minister Andrew Robb told CNBC on Tuesday.

(Read More: Australia Abandons Budget Plans as Tax Take Tumbles)

"Most commentators, business people and everyone else feel that this government has lost control of the government's finances," he added.

A Reuters poll showed analysts expect Australia's official forecast for economic growth to be cut to 2.75 percent from 3 percent for the current fiscal year and the next, below the long-term trend of around 3.25 percent.

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