By James Grubel
CANBERRA (Reuters) - Australian Prime Minister Julia Gillard's Labor government will narrowly win Saturday's election, a Reuters Poll Trend showed on Wednesday, paving the way for a controversial mining tax and a possible carbon trading scheme.
Australia's small Greens party, on course to gain the balance of power in the Senate upper house, said it would seek to toughen the mining tax if Labor wins.
The proposed 30 percent tax on iron ore and coal, forecast to raise A$10.5 billion (6.1 billion pounds) over two years starting 2012, has been signed off by mining giants BHP Billiton, Rio Tinto and Xstrata, but is opposed by much of the rest of Australia's key mining sector.
The Greens' stance could force the government to negotiate some changes. The Greens want to raise an extra A$2 billion a year, but party leader Bob Brown said they would not block the tax if it did not secure its changes.
"All I can do is say we will negotiate strongly, inject better ideas into the mining tax proposals Labor has, and I think we will get a dividend," Brown told the National Press Club.
"Given that option, you don't have to be Einstein to know that the Greens will be going with the Labor Party alternative."
A Labor victory would also see a possible carbon trading scheme to combat climate change from 2012 and ensure construction of a $38 billion fibre-optic national broadband network.
The Liberal-National opposition opposes all three policies.
CLOSE ELECTION
With two days of campaigning left and economic management a key issue, the opposition on Wednesday promised a budget surplus of A$6.2 billion by 2012-13, almost double the government's forecast surplus of A$3.5 billion.
Australians are historically wary of government borrowing due to high levels of personal debt and home ownership, so the opposition also promised to cut the country's A$90 billion ($81.5 billion) debt by a third within four years.
"The coalition has the courage and commitment to draw a line in the sand and stop Labor's reckless spending and waste," opposition treasury spokesman Joe Hockey said.
The latest Reuters Poll Trend shows Labor has a 3 point lead, which could see Gillard win a four-seat majority in the 150-seat parliament. Labor had a 16-seat majority at the last election.
"I think this will be the closest election since 1961, which was a cliff-hanger. I do think this will go down to the wire," Chris Bowen, Labor's campaign spokesman, said on Wednesday.
However, the possibility remains that the August 21 election may result in a hung parliament, where neither Labor nor the opposition wins enough seats to form government.
In that case the support of three independents will decide which party forms the next government.
Australia could face a fiscal crisis if voters deliver a hung parliament with two key independent politicians saying they cannot guarantee support for the next government's budget plans.
Without a clear winner, the next Australian government may have to rely on three independents to form a government, but in interviews with Reuters only one MP made a pre-election commitment to support government money bills.
A minority government represents the worst outcome for financial markets, with one analyst tipping a 2-5 percent fall in the Australian dollar in that case.
"If there is a hung parliament...it means there is a heck of a lot of uncertainty," said Guy Bruten, Australia & NZ strategist for AllianceBernstein. "That...won't help the Aussie dollar."
The Reuters Poll Trend found Gillard could lose up to 11 seats with voters angry over the mining tax, a failure by Labor to implement a carbon trading scheme and a perception of weak border protection with the arrival of illegal immigrants.
However, voters are also dissatisfied with conservative leader Tony Abbott, with Gillard commanding a 13 point lead as preferred prime minister. Many Australians do not want to vote for Labor, but shun the pugnacious Abbott as leader.
Online bookmakers said odds on a Gillard win, as well as the possibility of a hung parliament, had shortened.
(Additional reporting by Rob Taylor, Michael Perry, Ed Davies and Nopporn Wong-Anan in Singapore ; Editing by Nick Macfie)
