Mining tax boost tipped to bolster budget bottom line
The federal government is expected to reap hundreds of millions of dollars more in revenue from its mining tax even as it warns of a peak in the resources investment boom.
The Pre-election Economic and Fiscal Outlook by the Treasury and Finance departments mirrored the government's budget update in early August for slower growth, a higher unemployment rate and larger deficits.
But it bumped up the forecasts for cash receipts from the minerals resource rent tax by $450 million over the next four years to almost $6 billion.
While the new figures released on Tuesday remain a far cry from the government's original projection of $10.5 billion in revenue between 2012 and 2014, they provided a welcome boost to the budget's estimated bottom line. The update projections came just days after it was revealed mining giant Rio Tinto paid no resources tax during its first year.
At the same time, the fiscal outlook increased the estimates for receipts from the carbon pricing mechanism by $230 million to $16.1 billion in the next four years.
The mining sector has been boosted by a steady rise in commodity prices over the past few weeks as demand for iron ore, energy and industrial metals rise, and amid growing optimism about an economic recovery in the US and a stabilisation of a softening growth in China.
Iron ore prices have picked up from a low of $110.40 per tonne at the end of May and were trading more than 25 per cent higher at $138.70 per tonne late on Tuesday.
Mining stocks have also lifted the Australian sharemarket over the past two months amid the surprising strength in commodity prices.
Economists said the fiscal outlook once again underlined the challenges facing Australia as government revenue is hit by softer growth and a decline in the terms of trade.
"[The] risks around Treasury's forecasts now look evenly balanced," Commonwealth Bank economists said, noting that the fiscal outlook echoed the budget update's "conservative bias", which they felt were missing from the government's May budget estimates.
The document pointed to a weaker medium-term fiscal outlook, with the underlying cash surplus not expected to reach 1 per cent of growth until 2020-21 under a "no policy change" scenario, compared with a May budget estimate of the surplus being reached by 2018-19. These projections were not revised in the budget update.
Net debt was also estimated to drop to zero in 2023-24, later than the previous forecast of 2021-22.
With government revenue under pressure, National Australia Bank's chief executive Cameron Clyne said the GST should be reviewed as a way to improve the health of the budget.
"We've got a revenue problem in the country. That's not unusual when you've got declining company taxes. That's why everyone's running around talking about making cuts and savings, but I think part of the revenue is GST," Mr Clyne said on 3AW in Melbourne on Tuesday.
Mr Clyne said confidence in the economy was low, and a majority government after the election would help lift the spirits of consumers. He expected one more 0.25 percentage point cut in official interest rates.
The economy's struggles were also reflected in the NAB's monthly business survey released on Tuesday, which found business confidence had fallen to an eight-month low in July and business conditions remained weak despite the fall in the Australian dollar and interest rate cuts.
Retail was the only industry that reported a lift in confidence after improved July sales figures.
The softness in the economic indicators pointed to further signs that Australia's growth was "grinding lower", NAB said, as it revised its GDP growth down by 0.1 percentage point to 2.2 per cent in the calendar year 2013. NAB economists said they expected growth to recover to 2.6 per cent next year.
Business conditions were "very poor" in manufacturing, construction, mining, retail and wholesale. The expected peak in the mining investment boom was reflected in the weak conditions in Western Australia, which fared worst among the states.
The monthly survey contrasted with Roy Morgan Research's report for July, which found business confidence among the 2681 firms interviewed rising for the first time in fourth months. Consumer confidence also rose.