A breakthrough in the bitter row between the Australian government and the mining industry over a controversial new tax on resources has paved the way for an early general election.

This weekend's deal, which produced a much watered-down version of the Labour administration's original plan to tax super-profits, was seen as a victory for new prime minister Julia Gillard, the country's first female leader.

Last night, some political observers were predicting an August poll as Labour harnessed the enormous political goodwill Gillard has enjoyed in the past week. In less than nine days she has turned around the government's fortunes in a manner that few would have forecast in the dying days of Kevin Rudd's leadership.

After overseeing negotiations between the government and miners in Canberra last week, the Welsh-born prime minister was quick to trumpet the "great result" as a major victory for Labour and the Australian people.

She rejected suggestions the government had backed down in the face of an aggressive advertising and PR campaign by the resources industry. Yet, in truth, the deal is much more favourable to the miners than the original proposal announced by Rudd.

The new tax will be 30%, 10% less than before, and it will apply only to iron ore and coal, which are Australia's biggest exports. There was no hiding that the concessions would have major financial implications, with the government tipped to suffer a shortfall in its revenue equivalent to about €1.5bn.

Already the opposition coalition parties are threatening to derail the new tax, with Liberal leader Tony Abbott warning it will be a key election issue. He insisted he was not swayed by last week's deal and would move to block the tax in parliament.

"I think it's clear from the prime minister's comments that battle lines are drawn for the coming election," he said. "The next election will be a referendum on tax. The government wants a new tax, the coalition doesn't."