Joe Hockey grapples with falling iron ore price as Gina Rinehart warns Australia could become ‘the Greece of the south’

AS Joe Hockey says there may be no bottom to the iron ore price slump and the World Bank predicted a further slowdown for China, Gina Rinehart issued a dire warning.

FOUR months ago Joe Hockey was trying to balance the federal budget using an iron ore price of about $60 a tonne.

Now the treasurer is warning of a revenue loss of $25 billion over four years, as he factors in a price as low as $35 a tonne.

“There seems to be no floor,” Mr Hockey told Fairfax today, four weeks out from delivering his second budget.

But the government won’t be chasing down the revenue loss, opting instead to pursue growing export opportunities in Asia.

As Mr Hockey made his forecast, the World Bank had a gloomy prediction about how the Chinese economic slowdown would hit Australia as iron ore prices tumbled.

The bank noted that Australia’s growth pace had deteriorated sharply since the first quarter of 2014 as declining prices for key export commodities depressed mining investment and weakened the Australian dollar.

Budget is brewing ... It’s four weeks until Joe Hockey hands down his second budget as federal treasurer.

It predicted that a further slowdown in China, Australia’s biggest trading partner, would affect Australia and its neighbours. “The significant negative impact on Australia and New Zealand, among the world’s largest commodity suppliers, would lead to indirect spillovers on the Pacific Island countries, given their tight links through trade, investment and aid,” the World Bank’s East Asia and Pacific Economic Update predicted.

China’s growth pace in 2014 was the weakest since 1990 but the World Bank says things are set to get worse - just a month after the Chinese government cut its growth target to seven per cent. Chinese growth would ease from 7.4 per cent in 2014, to 7.1 per cent in 2015, 7.0 per cent in 2016 and 6.9 per cent in 2017. China is a major buyer of Australian iron ore, which is used to make steel.

“In China, as it shifts to a consumption-led, rather than an investment-led, growth model, the main challenge is to implement reforms that will ensure sustainable growth in the long run,” the World Bank said.

The World Bank’s chief economist for East Asia and the Pacific region, Sudhir Shetty, said many risks remained for East Asia Pacific region “both in the short and long run”.

Stark warning ... Gina Rinehart says Australia could win up ‘the Greece of the south’. Picture: Matt King/Getty Images

Mr Hockey’s comments came several days after Australia’s richest woman, Gina Rinehart, warned that Australia could become the ‘Greece of the south’ if the government doesn’t fix the budget.

The Australian reported that Ms Rinehart believes the federal government was not taking steps to address the loss in revenue that would go hand-in-hand with a drop in the iron ore price.

Ms Rinehart said she spoke on the issue “because I felt Australia is facing difficult times, and needs business people to clearly speak up; ones who recognise Australia is in record debt (and) so shouldn’t be asking for government to put its hand in our pockets to bail their companies out — or we’ll turn into another Greece.”

Despite the bleak outlook for revenue, Prime Minister Tony Abbott continues to promise the May 12 budget will be good news for families and small business.

“The assurance that I give you is that we aren’t going to tackle our budget problems at the expense of families’ budget problems,” he told the Seven Network.

The discipline of the government’s first budget meant families and small business could expect good things from the second, he said.

Labor, which faced similar revenue writedowns in government, is not blaming the treasurer for the predicament created by slumping iron ore prices.

But shadow treasurer Chris Bowen criticised Mr Hockey for creating unrealistic budget expectations.

Originally published as Joe Hockey grapples with falling iron ore price as Gina Rinehart warns Australia could become ‘the Greece of the south’