When Joe Hockey first assumed control of the Australian Budget he brought with him a much needed bout of bearishness. The Treasury under Wayne Swan had been missing bullish forecasts repeatedly for years and Hockey insisted that realism be injected into forecasting.
As it turned out, Mr Hockey faced the same problem despite his best efforts and so today his transformation into Mr Swan is complete, from David Uren:
Jobs growth and a recovery in iron ore prices will allow Joe Hockey to trim the commonwealth deficit to below $40 billion — better than forecast by economists and his own department — but with tonight’s budget revealing another blowout in the nation’s debt.
While financial markets have been anticipating a deficit this financial year of greater than $40bn, it is understood it will now beat Treasury’s deliberately pessimistic forecasts in the mid-year budget update in December.
…The government is still expecting falling commodity prices and weaker business investment than was anticipated six months ago will hit the budget bottom line over the next few years, with the Treasurer reiterating yesterday that the fall in iron ore prices would have “a dramatic impact” on budget revenues. However, the spot iron ore price has bounced back in the past two weeks from its low of $US47.50 a tonne to a current price of $US62 a tonne, which is close to Treasury’s expectations at the time of the December budget update and far higher than the $US35 a tonne Mr Hockey warned four weeks ago could be the base for budget calculations.
When faced with no credible path to surplus, call an iron ore bottom!
