Australian Prime Minister Kevin Rudd has called a general election, barely six weeks after he toppled former Labor leader Julia Gillard in a party vote, ending a turbulent three years in power for the minority government.

Rudd, who was dumped by his centre-left party in June 2010, has generated a spike in public support since he returned but conservative opposition leader Tony Abbott is still favourite to win power in the September 7 poll.

Mr Rudd's Labor government could fall with the loss of just one of the 150 seats in parliament. His government currently holds 71 seats, the opposition 72, with one Green and six independent cross-benchers.

Abbott's Liberal Party has promised to scrap an unpopular 30% tax on coal and iron-ore mine profits, as well as a carbon tax, if he wins power.

Mr Rudd returned as prime minister in June after he toppled Ms Gillard, with a third of her cabinet also stepping down.

His party has been in power since late 2007 and helped Australia avoid recession following the 2008 global financial crisis, aided by a prolonged mining boom fuelled by resources demand from China and India.

However, a budget update on Friday showed Australia's economic growth is slowing as the mining investment boom ends, with unemployment rising and the manufacturing sector in particular shedding jobs.

AMP Capital Investors chief economist Shane Oliver said the election campaign could usher in a quieter period in the economy because Australians normally restrain their spending during elections.

"It would be good for confidence to see an end to minority government and to get the election out of the way," Mr Oliver said, adding that a victory for the pro-business opposition parties could also boost business confidence.

Mr Rudd announced the election date in an email to his supporters, telling them: "It's on," after visiting Governor-General Quentin Bryce to dissolve the current parliament.

"We've got one hell of a fight on our hands," Mr Rudd said, later acknowledging to reporters he would lose power if current internal Labor polling was borne out at the election.

The latest polls show Mr Rudd has lifted Labor's support to give the government some chance of victory.

However the respected Newspoll in late July still had Mr Rudd's Labor Party trailing the opposition 48% to 52%.

Mr Abbott called Mr Rudd's government "dysfunctional" and said infighting would continue if Mr Rudd was returned.

If elected, a Liberal government would control government spending and stop the controversial flow of boats from Indonesia carrying asylum seekers, he said.

"It's really about who is more fair dinkum," Mr Abbott told reporters, using the Australian phrase for honesty or fairness.

Analyst Nick Economou said polls have not swung back to Mr Rudd enough to put Labor in a winning position, particularly in marginal seats in the outer suburbs of Australia's major cities.

"Rudd has undertaken a risky strategy ... I'm not sure that Labor's message is resonating in key marginal seats," said Mr Economou, of Monash University. "I can't see that he can win."

Online bookmaker Sportsbet.com said current projections had Mr Rudd winning 65 seats and Mr Abbott's conservatives securing 82.

Mr Abbott has built a strong lead in opinion polls with his campaign to abolish the carbon tax, which he has blamed for pushing up electricity prices and for job losses.

He has also won support for his strong stance against asylum seekers, with refugee policy set to play a leading role in the election.