FACTBOX-Key political risks to watch in Australia

CANBERRA, Dec 5 (Reuters) - Australia's resources boom and

21-year run of economic growth have both slowed in the second

half of 2012, posing new challenges for the minority government

as it heads into an election year in 2013.

Prime Minister Julia Gillard holds a narrow one-seat

majority in parliament, relying on the Greens and a group of

independent lawmakers to remain in power.

The government could still fall if it loses one seat in the

event of an unexpected by-election.

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Following are the key political risks to watch:

ECONOMY

The central bank has cut its growth forecasts for next year

to just under 2.75 percent from 3 percent, warning the upsurge

in the mining industry will peak earlier and at a lower level

than previously expected.

Australia's $1.4 trillion economy grew 0.5 percent in the

third quarter, or 3.1 percent for the year, but economists

expect growth to slow into 2013, possibly to levels nearer 2

percent. Unemployment remains at 5.4 percent, around half of the

rate in the eurozone.

At the same time, a strong local dollar, which has

traded near 30-year highs above parity with the U.S. dollar for

most of the past two years, plus rising costs and lower

commodity prices, are hampering investment in the resources

sector.

Latest data shows a record $280.5 billion in committed

investment into resources projects, although higher costs mask a

fall in the number of committed projects.

TAKE A LOOK - Australia's faltering resources boom

At its December board meeting, the central bank cut interest

rates by 25 points to 3.0 percent, matching its post-global

financial crisis low, to protect the economy from ongoing

uncertainty..

WHAT TO WATCH:

- Any further falls in commodity prices could weaken

Australian export revenue, see more resources projects shelved,

and lead to job cuts in the resources sector.

- The world economy poses a downside risk with ongoing

worries about Europe and U.S. fiscal policy, and growth in Asia

dampened by slower Chinese growth and weakness in Europe.

POLITICAL LEADERSHIP

Prime Minister Julia Gillard and her minority government

have survived a series of scandals throughout 2012, but managed

to push key reforms though parliament.

Gillard has slowly revived poll support for her Labor Party,

although Labor still trails the conservative opposition, and the

comeback appeared to stall over the closing months of 2012.

The respected Newspoll puts the government at 49 percent

support, compared with 51 percent for the opposition, giving

Labor lawmakers some hope that they could pull off a surprise

victory at the elections due around September 2013.

The Newspoll also shows Gillard has a considerable lead as

preferred prime minister over opposition leader Tony Abbott,

although both leaders are unpopular with voters.

Gillard ended the 2012 political year under a sustained

attack over her actions as a lawyer in 1992, when she advised

her then-boyfriend and union official Bruce Wilson over a union

slush fund, now at the centre of fraud claims.

Gillard has denied any wrongdoing, but the opposition has

demanded she resign and is promising to pursue the issue into

2013. Senior Labor ministers and party faction leaders have

stood by Gillard and her leadership.

What to watch:

- Any new revelation about Gillard's role in the union slush

fund, or any fresh political blunder, could severely damage her

leadership and force nervous government lawmakers to dump

Gillard in favour of a more popular leader, though there is only

minimal support for former prime minister Kevin Rudd.

- Any unexpected defection or retirement from parliament of

a government lawmaker could trigger a by-election in which

Gillard might lose control of a parliamentary majority. That

would likely trigger a full election which could see Labor swept

from office.

BUDGET, MINING TAX

Prime Minister Julia Gillard and Treasurer Wayne Swan are

politically committed to deliver a surplus budget for 2012-13,

despite slowing growth and lower commodity prices impacting on

tax revenues. The promise is key to countering perceptions among

many voters that Labor's economic stewardship has been poor

Further complicating the budget are projections for the

controversial 30 percent tax on iron ore and coal mine profits,

which began in July 2012. The mining tax is due to bring in A$2

billion ($2.10 billion) in the current financial year, but media

reports suggest the tax raised no revenue in the first quarter.

With a surplus forecast at only A$1.1 billion, any further

cut in mining profits, or economic slowdown, would force the

government to make further spending cuts ahead of the May budget

to shore up its economic credentials.

An independent tax review, released on Nov. 30, has also

urged Swan to close a loophole which allows states to increase

mining royalties and makes the national government refund the

cost to mining companies. That could re-ignite a bitter and

damaging public fight with miners BHP Billiton, Rio

Tinto, and Xstrata, who helped draft the

current tax.

What to watch:

- Any move by the government to walk away from the promised

surplus for 2012-13, no matter how small, would be politically

damaging, and leave the government open to accusations that it

cannot control spending.

- Any move to protect revenues by changing the mining tax,

or by capping the royalty rebates to miners, could spark a new

row with global mining companies, similar to the national

campaign in 2010 which helped bring about the downfall of then

prime minister Kevin Rudd.

- Protecting the surplus with further spending cuts could

lead to public service job losses at a time when unemployment is

already ticking higher.

REFUGEE POLICY

When she toppled Kevin Rudd to become prime minister in

mid-2010, Gillard promised to stop the steady stream of refugee

boats arriving via Indonesia, but the number of boats and asylum

seekers has continued to increase.

In August, the government revived the so-called "Pacific

solution" refugee policy, and has since re-opened immigration

detention centres in Nauru and Manus Island in Papua New Guinea

to counter an issue that divides voters.

Australia has also toughened the rules to ensure boat

arrivals could wait in detention for up to five years, with no

guarantee of settling in Australia even if their refugee claims

are accepted.

However, more than 3,000 people have arrived by boat since

the new policy was announced, and the government is under

intense political pressure over the issue, particularly in

crucial areas in suburban Sydney.

What to watch:

- More boat arrivals could further strain Australia's

immigration detention system and put more pressure on detention

centres on Nauru and Manus Island, which are still being

developed but which could be full by early 2013.

- Any more policy shifts could expose Australia to more

condemnation from rights groups and the United Nations High

Commission for Refugees, and fuel divisions within Gillard's

Labor government, as well as unsettle voters.

($1 = 0.9541 Australian dollars)

(Editing by Rob Taylor and Daniel Magnowski)

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