Mining profits take $4.6bn hit in blow to federal budget

Profits in the resources industry have slipped 8.8 per cent, driving an unexpected drop in economy-wide earnings and threatening to push the federal budget deeper into deficit.

Profits in the mining industry slumped $4.6bn in the September quarter, the Australian Bureau of Statistics reported. Picture: supplied.

Mining profits have taken a $4.6bn hit amid a decline in coal and iron ore exports, driving an unexpected drop in economy-wide earnings and threatening to push the federal budget deeper into deficit.

As Jim Chalmers prepares to hand down the mid-year budget update later this month, profits in the resources industry slipped by 8.8 per cent in the three months to September to $47.4bn, the Australian Bureau of Statistics said on Monday.

The slump will be a blow to federal finances, which are heavily reliant on commodity export earnings, with the Treasurer already foreshadowing that the mid-year economic and fiscal outlook will reveal a downgrade in the company tax take and a deepening of the deficit, currently projected at $28.3bn.

“[It’s] not great news for the sector or the governments relying on being able to tax it,” IFM chief economist Alex Joiner said.

Outside the resources sector, profits were also squeezed, falling by 1.7 per cent over the quarter to $74.1bn. Earnings in the wholesale trade sector were among those most acutely affected, dipping by 4.8 per cent.

Excluding the coronavirus pandemic, the annual decline in non-mining earnings of 2.8 per cent was the largest since 2016.

ABS figures also showed a step down in the growth of the private sector wages bill, which slowed to 4 per cent in the 12 months to September – its lowest annual rate in 3½ years – and down from 5.3 per cent in June.

While most industries recorded subdued growth, some of the largest wage gains were in the so-called “non-market” sector where pay packets are heavily subsidised by the taxpayer.

In the year to September, healthcare and education wages grew by 5 per cent and 5.4 per cent, respectively, the ABS said.

Meanwhile, inventory investment dipped 0.9 per cent across the quarter, outpacing an expected decline of 0.2 per cent, which economists predict will subtract 0.5 percentage points from economic growth figures scheduled for release on Wednesday.

Analysts expect the data will show the Australian economy expanded by 0.5 per cent in the three months to September, which would bring annual GDP growth to 1.1 per cent, up from 1 per cent in the 12 months to June.

Even as private sector activity remains subdued, soaring government expenditure is expected to continue making an outsized contribution to economic growth across the quarter.

Already at a record high of 27.3 per cent of GDP, public demand – a proxy for federal and state government spending – is forecast by Westpac senior economist Pat Bustamante to move higher still to 27.7 per cent on the back of federal and state power bill rebates and 50c public transport fares in Queensland.

Separate data released on Monday revealed another solid month for retail spending, which the ABS attributed to a pull-­forward of discounting ahead of the Black Friday sales.

Retail turnover climbed by 0.6 per cent in October, surpassing economists’ expectations of a 0.4 per cent increase. That increase brought the annual rate of growth to 3.4 per cent – its highest level in 16 months.

“This is likely in response to the income boost from the stage three tax cuts, the prospect of further rate rises dissipating and lower inflation as well as cheaper utilities and petrol,” Commonwealth bank economist Harry Ottley said.

The unexpectedly high Oct­ober retail reading added to the likelihood of a further delay to interest rate cuts by the Reserve Bank, KPMG chief economist Brendan Rynne said, with investors currently tipping a quarter point cut for May. “It is even less likely the RBA will cut rates in February – a prospect that was already receding, given last week’s high and sticky core inflation figures,” Dr Rynne said.