Article by Kimberley Caines & Josh Zimmerman courtesy of the West Australian.
Treasurer Jim Chalmers has admitted the iron ore price drop is a big challenge for the new Government — forcing him to keep a tight lid on spending and find other ways to save money.
A remarkable two-year run for the steel-making commodity has contributed billions of dollars to both the State and Federal budgets but now appears at risk of petering out in response to a reduction in demand from China, which is grappling with a COVID outbreak.
The price of iron ore has cratered 30 per cent in recent weeks to trade around $US100 per tonne.
That is after averaging $US154.50 in 2020-21 at one point reaching as high as $US220 — and around $US135 in 2021-22.
For every US$10 fall in average iron ore price over the course of a year, the Commonwealth estimates it will collect $200 million less in tax receipts, according to a 22-23 Budget paper sensitivity analysis.
Dr Chalmers told The West Australian that iron ore was a major boost to the budget for the Morrison Government.
“Iron ore prices have substantially propped up the budget in recent years and they remained above the March budget assumption throughout 2021-22,” he said.
“Prices have declined by 30 per cent in recent weeks, and if lower prices are sustained, the budget might not see the same substantial revenue upgrades that have occurred under the previous Government.
“I’ll have more to say about the impact of volatile commodity prices in my ministerial statement update next week.”
The impact on WA’s finances — which last year benefited from an estimated $10.3 billion in iron ore royalties — is even more severe.
The McGowan Government is conservatively forecasting an average iron ore price of $US77.50 per tonne in 2022-23, which would cut the royalty take nearly in half to $5.6 billion.
WA Treasury still forecasts a $1.6 billion surplus in 2022-23 but that is well down on $5.8 billion and $5.7 billion over the past two years.
Federal Treasury will on Friday announce it is doubling foreign investment application fees on July 29 to generate $455 million in budget revenue over the forward estimates after “inheriting a trillion dollars of debt”.
“Decisions like this are made necessary by the state of the Budget we have inherited from our predecessors,” Dr Chalmers said.
“We will always put Australian interests first. That means ensuring Australians benefit from foreign investment in Australia.”
Buying a residential property valued up to $2 million will cost an individual or entity from outside Australia $26,400 in foreign investment fees from next Friday, instead of the current $13,200.
Assistant Treasurer and Financial Services Minister Stephen Jones said the fees ensured the cost of administering the foreign investment framework was “not borne by Australians, and penalties encouraged compliance with our rules”.
“Australia continues to be an attractive place for investment. We have a lot to offer global investors including strong institutions, transparent regulations and a highly-skilled workforce,” he said.
“We welcome foreign investment in Australia because it plays a crucial role in Australia’s economic success and will continue to be important into the future.
“Foreign investment fees will continue to make up only a small proportion of total foreign direct investment.”