Australian PM Kevin Rudd announces election will be held on September 7

The new PM has conceded that his party faces a tough task holding on to office

The Australian Prime Minister Kevin Rudd has called an election for September 7, conceding that his party will be the underdog.

Rudd took office for a second time in June, knifing his predecessor and Labor colleague Julia Gillard.

At the time, the election date was set for September 14, though any pundits expected Mr Rudd to bring it forward, so as to benefit from an anticipated honeymoon period.

He said the campaign will be fought over who Australians trust to manage the economy, and that it can no longer rely on Chinese demand for iron ore and coal.

He said: "The boom, of course, has fuelled so much of our nation's wealth. That boom is over.

"Who do the Australian people trust to best lead them through the new economic challenges that lie ahead?"

He conceded that his party was the underdog, saying his advisers had told him that if the election had been held this weekend, his government would have lost.

But opinion polls also show that more voters prefer Rudd, a 55-year-old Chinese-speaking former Beijing diplomat, to opposition leader Tony Abbott, a former Roman Catholic seminarian and journalist of the same age.

After the announcement, Abbott promised to "get the budget back under control," and listed scrapping the unpopular carbon tax among his top priorities if elected.

Rudd challenged Tony Abbott to a series of debates starting on Monday night, saying his opponent had refused previous debate challenges because he was weak on policy, particularly economic policy.

On Friday the Treasury Department raised its estimated deficit for the current fiscal year to 30.1 billion Australian dollars ($26.8 billion) due to the mining slowdown. The new forecast for the year ending June 30, 2014, reveals a substantial deterioration in Australia's finances since May, when the department forecast a deficit of AU$18 billion.

The government also announced a AU$33.3 billion shortfall in the revenue forecast over the next four years — a deterioration of about AU$3 billion a week since the May forecast.

Economic growth for the fiscal year, forecast at 2.75 per cent in May, was downgraded on Friday to 2.5 per cent.

The conservative Liberal Party-led opposition coalition has accused the government of wasting money on stimulus spending after the last conservative government delivered surplus budgets years after year until it lost power in 2007.

Labor leads Australia's first minority government since World War II, with 71 seats in the 150-seat House of Representatives where parties form governments.

The opposition holds 72 seats, with the remainder held by independent lawmakers or sole legislators from minor parties.

The government faced the prospect of a loss of historic portions with Gillard at the helm.

Since then, Rudd has changed several key policy positions, and opinion polls suggest Labor is closing the opposition's lead.

A big issue is asylum policy, with both sides promising to cut the number of so-called "boat people" -  asylum seekers who arrive in the country after long and extremely dangerous trips in unsafe vessels.

Under a new policy introduced by Rudd, these people will not have their asylum claims heard in Australia, but at processing centres on neighbouring Papua New Guinea where, if the claim is accepted, they will be resettled.

The UN High Commission on Refugees (UNHCR) highlighted "formidable challenges" for the draconian and controversial plan, which it says has "significant shortcomings"

The Liberals have promised new policies of turning asylum seeker boats back and creating temporary protection visas so that refugees can be sent back to their homelands when conditions improve.