Australian Prime Minister Julia Gillard has set national elections for 14 September, giving an unusual eight months' notice of the vote.

Ms Gillard said the move is designed to end political uncertainty.

Opinion polls show Tony Abbott's opposition Liberal-National party is well ahead of the government and Ms 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.

Ms Gillard said the governor-general would dissolve the current parliament on 12 August, giving the government two more sessions of parliament to pass laws and deliver its May budget.

"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.

The election will decide whether Australia keeps its controversial carbon tax, and a 30% tax on coal and iron ore mining profits, which Mr Abbott has promised to scrap if he wins power.

But apart from these two policy differences, the government and opposition differ little on domestic issues.

Both firmly support greater involvement with China, the country's biggest trade partner, and close defence 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.

Mr Abbott said he was ready to fight the election, adding it would be decided on Ms Gillard's credibility.

"This election will be about trust," he said, hinting he will focus on Ms Gillard's broken promise not to introduce a carbon tax and failure to deliver a promised budget surplus this year.

Mr 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 tomorrow.

Ms Gillard currently governs with support from a group of independents and the Greens, who all support the 14 September 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.