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BRISBANE, Dec 20 AAP

December 20 2012, 4:58PM

Queensland Treasurer Tim Nicholls says it isn't his fault that state revenue has been forecast to drop by $2.6 billion for the next four years, only three months after the release of his first budget.

Mr Nicholls blames a softening coal market and the federal government, who he accuses of cutting health and education funding by $756 million.

Mining royalties will sink by $1.4 billion to 2015/16, due to lower coal prices and weakening demand from Asia.

Mr Nicholls said the Mid Year Fiscal Review, released on Thursday, also predicts an increase in the unemployment rate by a quarter of a per cent and downgrades economic growth, also by a quarter of a per cent, for this financial year and next.

However, the budget update shows expenses are about $1.1 billion lower over the next four years, with employee expenses slightly lower than expected.

Queensland would return to a fiscal surplus in 2014/15 as planned but it would be $534 million, which is $118 million less than earlier predicted.

Mr Nicholls ruled out increasing taxes to make up for fall in revenue and said he couldn't foresee further job cuts.

He said the 14,000 public service positions axed have helped the state absorb the budget blows.

"We've been able to absorb the headwinds which have blown out of Europe and have impacted on our Asian trading partners by the changes that have been made," he said.

Mr Nicholls wouldn't reveal whether asset sales were recommended in the second report of the Costello-led audit of Queensland's finances, which is yet to be released.

He said the state had two options to return to a AAA credit rating - either to spend less that it earns to achieve the goal slowly or sell assets to deliver a quicker fix.

Mr Nicholls again promised any change would have to have a mandate from the community.

"The government has made no decisions in relation to asset sales nor have we considered which or any, if any, are to be sold," he said.

The public service union, Together, said the budget update shows the slash and burn approach to jobs isn't working.

"We've seen a significant deterioration in the Queensland economy as the public sector job cuts have a significant impact across the rest of the economy," union secretary Alex Scott said.

Mr Scott also accused the government of burying the data before Christmas, while the public is distracted.

Federal Treasurer Wayne Swan said Mr Nicholls has lied by saying Commonwealth payments are down.

Mr Swan said payments to Queensland are increasing by 24 per cent, or $4.3 billion, over the next four years, to $22 billion in 2015-16.

"Queenslanders are sick of Mr Nicholls and Premier Newman blaming everyone else for their cruel cuts," he said.

State opposition treasury spokesman Curtis Pitt said the results of the mid-year review would be used by the LNP as an excuse to embark on asset sales.

He also said the treasurer's statement that the LNP needed another term in office to return the state's AAA credit rating proved the mass sackings and savage cuts to frontline services this year were to fund LNP election promises and had nothing to do with the state's credit rating.

Queensland Resources Council chief executive Michael Roche said royalties paid to the state would be down $388 million this financial year.

But he said Mr Nicholls may have overestimated the downturn in royalties, and believes exports will pick up more than the treasury has forecast.

By Kym Agius