IRON ORE GIVES BUDGET BOOST

Article by Kate Purnell courtesy of Pilbara News.

Australia’s Budget bottom line is recovering faster than expected, driven largely by the strength of WA’s iron ore sector, with analysts now suggesting it could be back in surplus within four years.

Since December’s mid-year outlook , the Federal Government’s Budget has already improved by $23 billion. Analysts from investment bank UBS expected if the current rate of progress continued, the Budget could return to balance in 2024-25 , with an overall $200b improvement across the profile.

As unemployment rates hit near-record lows, business profits recover and asset prices boom, UBS suggested there was limited “structural scarring” on the Budget from COVID-19 , which had accelerated the recovery.

That was complemented by the surging price of iron ore, which had defied Government estimates.

“A stronger-than-expected global economy contributed to much higher than expected commodity prices, especially iron ore,” UBS said.

The MYEFO mid-year outlook conservatively predicted the price of the steel-making commodity would retreat sharply to about $US60 a tonne.

Instead, iron ore last week rallied to 10-year highs, hitting around $US180/t.

When Treasurer Josh Frydenberg announces the May Budget, UBS is forecasting there to be a $35b improvement, with a deficit of $163b when Treasurer Josh Frydenberg hands down the May Budget .

“We allow for conservative forecasts and new policies which increase the deficit,” UBS said.

However, if momentum continued for the rest of 2020/21, the deficit could be up to $50b smaller than expected, the investment bank suggested. 

 

.