Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
The dramatic rise and fall in the iron ore price will not have had a detrimental impact on forecasts for the federal budget’s bottom line so far, as Treasury had forecast a much lower price for the red metal.
In a new report, the independent Parliamentary Budget Office says commodity prices can be volatile and the budget takes a deliberately prudent approach to forecasts.
Since the May budget, the iron ore price has struck a record high of around $US230 per tonne, but has since collapsed to below $US100 per tonne.
But Treasury had based its budget predictions on an iron ore price of just $US55 per tonne by March next year.
“The recent sharp increase and fall in iron ore prices will not detract from forecast company tax receipts,” the PBO says.
It expects the government’s financial position will still improve, albeit remaining in deficit over the next decade.
Deficits are expected to fall from $161 billion (7.8 per cent of gross domestic product) in the 2020/21 financial year to $51.6 billion (1.5 per cent of GDP) in 2030/31.
This reflects both the winding down of COVID-19 support payments and improving tax receipts as the economy recovers.
However, aside from the government’s pandemic policy response, increased payments since late 2020 for aged care and the National Disability Insurance Scheme will remain in place.
“There is substantial uncertainty around NDIS estimates, as this sizeable and relatively new scheme has only just completed its full geographical rollout,” the PBO warns.
It also sees a key risk to the economic outlook, and in turn tax receipts, from the timing around the reopening of Australia’s borders and the recovery of net overseas migration.
“While total payments tend to be less responsive to the economy than receipts, extended economic restrictions would mean higher projected payments,” the PBO says.
These could come through payments directly related to the health response, unemployment benefits and the COVID-19 disaster payments, and potentially through additional support mechanisms as the pandemic evolves.
“Many of these risks are related to more immediate impacts of the current strains of COVID-19,” it says.
“The emergence of additional strains of the virus is one of several possible significant events affecting the economic and fiscal outlook.”
The budget papers show gross debt topping $1 trillion (48.6 per cent of GDP) in 2022/23, from just below that in 2021/22.
In 2018/19, and before the pandemic, gross debt stood at around $540 million or 27.8 per cent of GDP.
The PBO expects gross debt to peak around 50 per cent of GDP in 2030/31 and then fall steadily to the early 2060s.