The falling iron ore price is expected to wipe billions from Budget revenues, increasing pressure on Treasurer Joe Hockey.
As reported in The Australian today, Deloitte Access Economics director, Chris Richardson, has estimated that the iron ore price plunge below $US50 a tonne could wipe $3 billion from forecast revenues by 2015-16:
“What we’re now seeing is that commodity prices around the world are going back to normal,” Mr Richardson said. “That is a big problem for Australia. It’s an old mistake to assume that a boom is permanent. In this particular case it was a very large boom and both sides of politics spent a lot.”
Readers might recall that the Mid-Year Economic and Fiscal Outlook (MYEFO), released in December, is already looking hopelessly optimistic. It forecast that the iron ore price would average $60 a tonne over the forward estimates:
It also forecast that nominal GDP, employment and unemployment would magically recover over the forward estimates:
Just as Australian mining investment collapses from record highs:
And the Australian car assembly industry shutters by 2017.
Meanwhile, Fairfax is reporting today that Australian consumers are becoming increasingly anxious about Government policy and the Budget, according to the NAB quarterly consumer anxiety index:
“Government policy is now the single biggest cause of anxiety for consumers, just ahead of cost of living, while job security continues to cause the least stress,” said NAB’s group chief economist Alan Oster.
“What it basically says is that the consumer is still scared, that’s basically the bottom line”…
With less than six weeks to the budget, the Treasurer is now confronting a triple whammy of negative impacts on the budget bottom line: desperately low revenue from iron ore exports; the prospect of falling domestic demand as shoppers close their wallets; and the need to fund tax cuts for small businesses and additional child-care assistance for families.
Of course, the pressures facing the Budget have been known for several years, so nobody – not least Treasurer Hockey – should be surprised by the ongoing Budget deterioration.
