The news just keeps getting worse for Treasurer Joe Hockey, with the falling iron ore price expected to wipe billions more from the Federal Budget. From ABC News:
“Since last year’s budget, collapsing iron ore prices and the subsequent write-down in tax receipts have already driven a cut in government revenue of more than $30 billion over four years,” [Prime Minister, Tony Abbott] said…
Treasurer Joe Hockey has said Treasury is contemplating a price as low as $35 per tonne in its estimates.
Readers might recall that last year’s Budget forecast an iron ore price of more than $90 by now, falling to only $87 by mid-2016 (see below table).
The Mid-Year Economic and Fiscal Outlook (MYEFO), released in December, then revised down the iron ore forecast to an average of $US60 a tonne over the forward estimates, which has also proved far to optimistic:
Hence the big hit to revenues from the iron ore slide.
It should also be pointed out, however, that December’s MYEFO 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.
Bottom line: expect more revenue downgrades, even in the unlikely event that iron ore prices maintain their current levels.
