Kevin Rudd and Tony Abbott faced an hour of questioning from a panel of journalists in the capital, Canberra.
But Current opinion polls put Mr Abbott’s Liberal-National coalition in the lead for the 7 September election. But Labor has narrowed its lead since Mr Rudd returned to office in June.
Mr Rudd is seen by the polls as Australians’ preferred choice as a prime minister, while his party lags behind him.
The debate was one of the first of three possible meetings before the polling date. Predictions were made of a fiery exchange between the two men, but Australian media said the tone that the debate had been far more cordial then ever expected.
Mr Rudd said in his opening comments that the election was “a clear choice on the economy, on jobs, on how we support families under pressure and how we support education and health”.
He also said he offered a “new way to take Australia forward” as the country’s economic mining boom begins to decline.
In the meanwhile Mr Abbott, told viewers the election was not about personalities, but about deciding “who can make your future more secure”.
“Mr Rudd talks about a new way. Well, if you want a new way you’ve got to choose a new government,” he said.
The key election issue of immigration control, criticizing the government’s policies and saying his coalition would put an end to the large numbers of people arriving in Australia by boat, as the opposition leader immediately addressed.
“No self-respecting country can hand over part of its immigration control programme to people smugglers,” he said.
‘Stop being evasive’ When challenged on his economic plans – which Mr Rudd says contain A $70bn ($65bn: £42bn) gap – Mr Abbott said voters would “see in good time before polling day exactly how much we’re going to spend”.
“Surely four weeks before an election he can stop being evasive” about how the shortfall will be made up. Mr Rudd responded.
The debate briefly touched on whether the leaders would take steps towards legalising gay marriage.
Mr Abbot said there had been a “fairly decisive” parliamentary vote against this a year ago, and it would not be a priority for his government.
But Mr Rudd said if re-elected, he would bring in a bill within his first 100 days to legalise marriage equality.
Climate concerns were also discussed, with Mr Rudd saying Australia’s leader “will be doing a disservice to our kids and grandkids if we do not act”.
Mr Abbott said his coalition was committed to delivering the 5% reduction in carbon emissions it has already announced.
Mr Rudd called the election on 4 August, earlier than he needed to, which correspondents said was a sign he was trying to make the most of the momentum after he defeated former prime minister Julia Gillard in a party vote.
On August 5, the two leaders have been touring the country campaigning.
Labor has already announced an A$200m package to assist the car industry.
Mr Abbott, meanwhile, pledged to repeal Australia’s carbon tax at his first campaign event in Brisbane. Labor has been hit by the loss of two candidates in the past week.
Mr Rudd demanded that Geoff Lake, candidate for the safe seat of Hotham in Victoria, withdraw after it emerged he had abused a woman with a disability during a council meeting a decade ago.
Meanwhile the Labor candidate for the Queensland seat of Kennedy, Ken Robertson, stood down from the race after calling Mr Abbott a racist and “very bigoted” in an interview.
He said he was withdrawing “in the interests of ensuring that this matter does not distract from Labor’s campaign for a fairer Australia”.
Written By: Landi Bezuidenhout