Iron ore price surge delivers Labor an $18b tax windfall A...

Iron ore price surge delivers Labor an $18b tax windfall


A multi-month surge in iron ore prices is poised to deliver Treasurer Jim Chalmers as much as $18 billion in extra tax revenue, bolstering the prospect of a second surplus and funding another round of subsidies for voters.
Iron ore has rallied to $US145 per tonne, its highest price since April 2022, as optimism builds that China’s economic recovery is gaining momentum thanks to a combination of monetary and fiscal stimulus.
The price surge is a boon to the federal government, which is reliant on sales of the commodity as a major source of tax revenue.
The mid-year economic and fiscal outlook, released in December, assumed iron ore prices would peak at $US105 per tonne in the September quarter 2023, falling to $US60 per tonne by September 2024.
Those forecasts, which analysts already considered pessimistic, now look even more so.


Were iron ore to remain at $US140 per tonne, veteran budget watcher Chris Richardson estimates Treasury would earn an additional $6 billion in revenue this financial year than what was forecast only weeks ago, and an extra $12 billion in revenue in 2024-25.
While Treasury says that an additional $US10 per tonne increase in iron ore only adds $500 million to revenue in a given financial year, Mr Richardson said this estimate was too low.
“Treasury’s assumptions are silly, and each day that silly doesn’t happen adds money to the bottom line,” he told The Australian Financial Review.
Mr Richardson said every $US10 increase in iron prices delivered Australia an extra $10 billion in national income, a large chunk of which flowed through to the government’s coffers in the form of taxes on mining sector profits.
Second surplus in sight

The almost 30 per cent lift in iron ore prices since mid-October makes it even more likely the federal government will record a second consecutive budget surplus in 2023-24, rather than the narrow $1.1 billion deficit predicted in the MYEFO.

Compared to 12 months ago, Mr Richardson said the strength in revenue growth was largely due to households paying more income tax, with the personal tax take up almost 20 per cent on an annual basis in the five months to November 2023.
Taxes on company profits, by contrast, were down almost 5 per cent, despite high commodity prices.
“The surplus is being maintained, but it’s mainly being maintained by leaning on families rather than companies,” he said. “Profits aren’t quite as good as they were, whereas wages growth [and hours] have picked up.”
The revenue influx comes as Labor prepares to dole out extra cash to households in a bid to woo back voters amid widespread concerns over the sharp increase in the cost of living.
Prime Minister Anthony Albanese said on Wednesday the government was considering providing additional subsidies to households in the May budget.
“We’ve asked Treasury and Finance, as we did in the lead-up to the last budget,” he said. “We asked them to give consideration to what are the measures that can take pressure off families on cost of living without putting pressure on inflation.”

The increase in iron ore prices is largely due to developments in the Chinese economy, with the steel-making sector a major buyer of the commodity.
In December, China’s biggest state-owned banks launched a third round of rate cuts as authorities boosted efforts to lift economic activity.
Beijing had previously announced a 1 trillion yuan ($210 billion) plan to support urban revitalisation, providing relief for the steel-intensive property sector amid a wave of developer defaults.