Mining exports are set to plunge more than $100bn over the next four years and deliver an $8.5bn hit to company tax receipts, representing a $36bn reversal in forecast federal revenue compared with a year ago, this week’s mid-year budget update will reveal.
Figures to be included in Wednesday’s mid-year economic and fiscal outlook (Myefo) show China’s weaker economy is seriously hurting Australia’s mining industry, causing forecast company tax receipts to be revised downwards for the first time since 2020. This is due to the Treasury downgrading its four-year forecast for mineral exports by more than $100bn.
“Challenges in the Chinese economy will have flow-on effects for our own budget and that will be clear in Treasury’s forecasts on Wednesday,” the federal treasurer, Jim Chalmers, said on Sunday.
“The global economy is uncertain, the global outlook is unsettling and that’s weighing heavily on our economy.”
Chalmers foreshadowed worsening deficits, indicating that Myefo would reveal “some slippage in some years”.
Compared with last December’s mid-year update, the May budget suggested company tax receipts would increase by $26.2bn over the five years from 2023. It flagged falls in mining exports in future years but said strength in the rest of the economy would still mean company tax receipts rose.
The final budget outcome, published in September, revised the forecast up further.
But this week’s figures will show the Chinese downturn, especially in its property sector, is taking a greater toll on Australia’s mining industry than anticipated.
They represent a $36bn reversal of economic fortune compared with the Myefo forecasts a year ago. The $8.5bn downward company tax revision is equal to twice the total cost of the government’s power-bill rebates and half the annual cost of the family tax rebate.
The May budget papers acknowledged that commodity price volatility posed “significant challenges for forecasting near-term company tax receipts”.
China’s relative lack of transparency regarding its economy also makes forecasting harder.
In May the Treasury modelled two alternative scenarios for company tax receipts based on possible variations in coal and iron ore prices – one rosier and one gloomier than its own forecasts.
Under the downside scenario, it found company tax receipts could fall $4.5bn over the four-year forward estimates. But it did not foresee a fall in exports of this magnitude.
“Pressures on the budget are intensifying, global volatility is a big part of the story and you’ll see that in the mid-year update,” Chalmers said on Sunday.
“We’re getting the budget in much better nick and building up Australia’s buffers to manage global uncertainty but we’re not immune from challenges coming at us from around the world.”
The gloomy figures come as the government unveils a new deal with the states and territories to unlock up to $3bn in further funding from its Housing Australia Future Fund to build up to 5,000 homes for the lowest-income Australians.
The housing minister, Clare O’Neil, was to announce a new fast-tracked funding round for social housing projects on Monday, to be contingent on state governments releasing land and engaging community housing providers.
State and territory applications would close in late January, allowing the Albanese government to announce specific new projects before next year’s federal election, due by mid-May.
“This is a great new partnership with states and territories that is going to fast-track 5,000 new social homes because the way out of this housing crisis is to build, build, build,” O’Neil said.
