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Budget 2021: Iron ore revenue tipped to fall

Australia’s terms of trade is expected to be slashed by 8 per cent next year amid forecasts the iron ore price will plummet.

The budget papers show that the elevated iron ore price of about $US160 per tonne since December has been the major contributor to better-than-expected company tax revenue. Picture: Evan Collis
The budget papers show that the elevated iron ore price of about $US160 per tonne since December has been the major contributor to better-than-expected company tax revenue. Picture: Evan Collis

Australia’s terms of trade is expected to be slashed by 8 per cent next year amid forecasts the iron ore price will plummet.

The budget papers show that the elevated iron ore price of about $US160 per tonne since December has been the major contributor to better-than-expected company tax revenue.

“Since the 2020-21 Budget, company tax forecasts have been revised up by $11.8bn over the four years to 2023-24,” the budget said. “Iron ore prices have remained elevated at around $US160 per tonne since mid-December 2020, due to strong Chinese demand and unresolved supply disruptions in Brazil.”

The budget said the elevated iron ore prices have contributed to a 10 per cent increase in the terms of trade in the 2021 financial year.

However, Treasury has predicted the iron ore price will decline to $US55 per tonne by the end of the March quarter in 2022, three quarters later than predicted in last year’s budget.

“Elevated iron ore prices are assumed to decline and the terms of trade are expected to fall by 8 per cent in 2021-22 and by a further 10½ per cent in 2022-23,” the budget papers say.

Josh Frydenberg said the Treasury forecasts on the price of iron ore were “conservative”.

“Today we give a very big thanks to Western Australia and the iron ore industry because we are seeing record prices, which means mining companies pay (higher) tax receipts and there are more export dollars for Australia,” the Treasurer said.

The budget included $100m in incentives for mining exploration, and $20m to diversify Australia’s export markets.

There is also $15.7m to support gas extraction in the North Bowen and Galilee basins.

Resources Minister Keith Pitt said the government was supporting the industry make the “next big discoveries”.

“In setting up Australia for the future, the government will invest in a global strategy to highlight the quality, strength and reliability of Australia as a supplier of crucial resources and energy to the world while supporting companies to diversify and develop new markets,” Mr Pitt said.

“The resources sector employs more than 260,000 people, with many of these jobs in regional Australia. More than a million Australians rely on the sector indirectly.”

The budget has also flagged a yet-to-be-determined decommissioning levy on offshore petroleum production to fund remediation works in the Laminaria-Corallina oilfields.

Treasury has warned that the frosty relationship with China made coal exports uncertain.

“Metallurgical coal prices have also been volatile recently and are modestly higher than recent COVID-period lows. Thermal coal prices have been supported by the continued recovery in global economic activity,” the budget papers say.

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Original URL: https://www.theaustralian.com.au/business/mining-energy/budget-2021-iron-ore-revenue-tipped-to-fall/news-story/0bfc453306fdd79b5cd89ad7cdee978f