Reality bites. With commodity prices taking a continued beating owing to the massive slowing global economic growth, investment bank UBS AG said it is impossible for Australia to generate the forecast earnings from its planned Mineral Resources Rent Tax (MRRT) in the next two years.

In a report over the weekend, UBS AG knocked down whatever bountiful earnings expected from the MRRT, saying the giant mining firms will only get to pay about $3.2 billion in the first two years of the tax, less than half to the whopping $6.5 billion that Australia's Treasury calculated.

Specifically, mining companies like BHP, Rio and Fortescue Metals Group Ltd. will only get to pay A$1.8 billion and A$1.4 billion, in fiscal years 2013 and 2014, respectively.

This development effectively puts at risk whatever budget spending the Australian government has planned.

Citing information from a report commissioned by the mining giants' industry parent group, the Minerals Council of Australia, The Sydney Morning Herald reported the government should have been careful and conscientious in lining up budgetary expenses culled from the earnings of the MRRT, which takes effect on July 1.

"It would be folly to try to reliably estimate how much revenue it will make," The Sydney Morning Herald said.

Although ''designed to fund a stable and growing series of government obligations,'' the mining tax is a ''volatile stream of tax revenue," Glyn Lawcock, UBS AG analyst said.

''As a result of this mismatch of a declining revenue position on our commodity price forecasts and rising obligations, we believe a future Labor government may seek to either raise the tax rates or bring in other commodities,'' he said.

The Australian government said some $13.4 billion would be raised from the MRRT's first four years alone. All that have been stipulated and noted for in the budget to aid increases in the fund superannuation and tax breaks for small business, among others.

In its report, UBS AG said prices of iron ore will drop from $US145 a tonne this year to $US80 in 2016. The dollar is likewise forecast to have a long-term average exchange rate of US80c, the investment bank added.