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CANBERRA (Reuters) - Australian Prime Minister Julia Gillard set national elections for September 14, stunning voters on Wednesday with eight months notice of the vote in a bold move designed to end political uncertainty surrounding her struggling minority government.
The election date means Gillard's government will serve a full three-year term, although analysts said the early notice meant she had started an eight-month campaign and lost her ability catch opposition leader Tony Abbott by surprise with a snap early poll.
"She's going for the strategy than an incumbent can wear out a fragile, or potentially fragile, opponent with a long campaign. The idea is for them to punch themselves out," analyst Paul Williams from Griffith University told Reuters.
"In this case, Tony Abbott and the opposition are so well entrenched it will backfire."
Opinion polls show Abbott's opposition Liberal-National party is well ahead of the government and Gillard would be swept from office, losing up to 18 seats, if an election were held now. The government could lose power if it loses just one seat.
The election will decide whether Australia keeps its controversial carbon tax, and a 30 percent tax on coal and iron ore mining profits, which Abbott has promised to scrap it if he wins power.
But apart from these two policy differences, the government and opposition differ little on domestic issues, and both firmly support greater involvement with China, the country's biggest trade partner, and close defense ties with the United States.
The financial markets were unmoved by the announcement. The Australian dollar remained firm, hitting its highest level against the Japanese yen in over four years. The share market reached a fresh 21-month high and government bonds were steady.
Abbott said he was ready to fight the election, adding it would be decided on Gillard's credibility. "This election will be about trust," he said, hinting he will focus on Gillard's broken promise not to introduce a carbon tax and failure to deliver a promised budget surplus this year.
Abbott has successfully eroded government support through his constant negative attacks, but has yet to make any detailed policy announcements. He will make his first major 2013 speech on Thursday.
Business said it welcomed the early announcement of the election date, but said it would not have much of an impact on certainty given the date fell within the normal election timing.
"Its real value is the knowledge that the last quarter of the year will be uninterrupted by an election," said Australian Chamber of Commerce and Industry chief executive Peter Anderson.
Gillard currently governs with support from a group of independents and the Greens, who all support the September 14 election. That means she has locked in majority support until the election, although a sudden by-election could still change the balance if a lawmaker dies.
Under Australian laws, governments serve for up to three years and the prime minister decides the election date. Gillard said she wanted to end political uncertainty by setting a date.
"It is not right for Australians to be forced into a guessing game, and it's not right for Australians to not face this year with certainty and stability," she said in a speech to the National Press club.
Her speech laid the groundwork for an election year battle focused on the economy, arguing that a strong economy is necessary to ensure fairness in education and disability services -- two key policies aimed at Labor heartland voters.
Gillard said the governor-general would dissolve the current parliament on August 12, giving the government two more sessions of parliament to pass laws and deliver its May budget.
Australia's resource economy is expected to slow this year as a stubbornly high currency crimps export earnings and a boom in mining investment plateaus. Australia's A$1.5 trillion ($1.53 trillion) economy has grown for the past 22 years and has overtaken Spain as the world's 12th largest.
Though the government has dropped its pledge to reach a budget surplus for 2012/13, any deficit is still likely to be a fraction of the economy's A$1.5 trillion in annual economic output and no worry to investors.
Additional reporting by Janes Wardell and Wayne Cole in Sydney; Editing by Michael Perry