"Impending Mining Export Crisis: A $100 Billion Plunge and Its $36 Billion Blow to Federal Revenue"

The mid-year budget update indicates a dip in company tax receipts for the first time since 2020, suggesting potential economic challenges ahead. This revision highlights shifts in corporate profitability and broader fiscal implications.

P24 News Media

December 15, 2024

1 minute

"Impending Mining Export Crisis: A $100 Billion Plunge and Its $36 Billion Blow to Federal Revenue"

India

Recent estimates indicate that mining exports in Australia are on track for a dramatic decline exceeding $100 billion over the next four years. This downturn is expected to impact company tax receipts by approximately $8.5 billion, leading to a staggering $36 billion shift in projected federal revenue compared to forecasts from just a year ago. These revelations will be highlighted in the upcoming mid-year economic and fiscal outlook (Myefo), set to be published on Wednesday.

The anticipated figures reflect significant repercussions from a sluggish Chinese economy, which is exerting considerable pressure on Australia’s mining sector. For the first time since 2020, the Treasury has adjusted its four-year outlook for mineral exports downward by over $100 billion, acknowledging the adverse effects of the Chinese economic situation.

Federal Treasurer Jim Chalmers emphasized the interconnectedness of the global economy during a statement on Sunday. He noted that the challenges faced by China will have repercussions for Australia’s fiscal health, a revelation that will become evident in the Treasury's updates. Chalmers remarked, "The global economy is uncertain, the global outlook is unsettling, and that’s weighing heavily on our economy."

Chalmers also indicated that the country should brace for increasing budget deficits, suggesting that the forthcoming Myefo will disclose “some slippage in some years.” In comparison to last December's update, the May budget had predicted a rise in company tax receipts by $26.2 billion over five years starting in 2023, despite forecasting declines in mining exports. It had anticipated that the strength of the broader economy would offset these losses, leading to an overall increase in tax receipts.

The latest data, however, is likely to reveal a more significant contraction in mining export values, primarily driven by downturns in China’s property market, which have adversely affected Australia’s mining outputs more than previously forecasted. This marks a $36 billion reversal from the economic predictions made in the previous year's Myefo.

The adjustment in company tax forecasts equates to double the total expenditure related to the government's power-bill rebates and half the annual cost allocated for the family tax rebate. This financial realignment underscores the acute challenges facing the Australian economy.

Moreover, the May budget papers had recognized that fluctuations in commodity prices introduce major difficulties in forecasting short-term company tax revenue. The opacity surrounding China's economic performance further complicates these assessments. In May, Treasury had presented two potential trajectories for company tax receipts based on variations in coal and iron ore prices, one optimistic and the other more pessimistic. In its more cautious scenario, Treasury projected that company tax receipts could decline by $4.5 billion over the four-year estimates, but it did not predict a contraction of the magnitude now anticipated.

Chalmers reiterated that pressures impacting the budget are becoming more acute, attributing a significant portion of this strain to global market volatility. As he noted, “We’re getting the budget in a much better position and strengthening Australia’s reserves to manage global uncertainty, but we’re not immune to challenges originating from overseas.”

In light of these troubling figures, the government has also announced a new agreement with various states and territories, aimed at unlocking up to $3 billion from the Housing Australia Future Fund to construct as many as 5,000 homes designated for low-income Australians. Housing Minister Clare O’Neil was set to unveil a fast-tracked funding initiative on Monday for social housing projects, contingent upon state governments making land available and collaborating with community housing providers.

The application period for state and territory proposals is expected to conclude by late January, enabling the Albanese government to unveil specific new housing initiatives before the next federal election, which must occur by mid-May. O’Neil asserted, “This is a remarkable new partnership with states and territories that is going to expedite the creation of 5,000 new social homes, as the answer to the housing crisis lies in building, building, building.”