Australian Prime Minister Tony Abbott Speaks During The Launch Of A Student Mobility Program
Australian Prime Minister Tony Abbott speaks during the launch of a student mobility program at a university in Mumbai September 4, 2014. Reuters

Australia may soon face a ballooning budget deficit as a new report found it could go beyond previous expectations. In a Parliamentary Budget Office report, the deficit is set to expand by billions of dollars because the new budget was vulnerable to slow labour productivity growth and weak terms of trade.

Australia is highly dependent on agriculture and mining for economic growth but declining iron ore prices and the Abbott government's inability to pass bills that can increase revenue to the Senate only adds to the strain on the budget, according to BBC News.

Prime Minister Tony Abbott is struggling to keep his promise of controlling government spending as proposed budget cuts are met with strong opposition. With only a number of days left in 2014, Mr Abbott wants to regain momentum after failing to get some parts of the Coalition's first budget through the Senate.

The Budget Office warned that the risks of a budget blowout will remain high for at least 10 years as the cost of health, education and welfare benefits continue to rise. Since winning the election against Labour in 2013, Mr Abbott has been forced to defend his government's polices after he broke his election promises.

In his election campaign last year, Mr Abbott had promised to achieve a budget surplus and put an end to the country's budget deficits by 2018-19. Based on estimates made by independent consultancy firm Macroeconomics, about $9.4 billion in annual budget savings are being held up in the Senate. The slowdown of the mining boom and declining commodity prices may have been affected by the government's budget deadlock.

Meanwhile, Treasurer Joe Hockey is expected to deliver a budget update in December that will consider the impact of the sharp decline in commodity prices. The price of iron ore fell to below $70 per tonne earlier in the week. The current price is at its lowest in five years and economists expect it to remain weak.

As for the government's mounting political woes, WSJ reports that Mr Abbott had recently ordered Defence Minister David Johnston to apologise for saying he did not trust Australian ship builders to "build a canoe" much less a submarine. His statement had angered South Australia where the state-owned naval shipyard was based. The backlash has triggered speculation that Mr Abbott may be in the process of reshuffling his Cabinet.