Resources boom to impact on Australia's budget

14:32, May 03, 2010      

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A wave in commodity prices resulting from the renewed resources boom should slash the Australian federal government's budget deficits in coming years, an independent economic forecaster said on Monday

While the economy has performed much better than forecast during the global recession, Access economist Chris Richardson said the "good news" will take a little longer to flow through than most realize.

"In part, that is because our wealth still took a battering through the crisis," Richardson said in his Budget Monitor on Monday.

"Although profits jump when commodity prices surge, and profits are relatively highly taxed, the tax system slows the pass-through of that renewed river of gold."

Access saw an underlying budget deficit of 52.2 billion dollars (48.6 billion U.S. dollars) for 2009/10, a 5.5 billion dollars (5. 09 billion U.S. dollars) improvement on the government's forecast made in the Mid-Year Economic and Fiscal Outlook (MYEFO) late last year.

"So, the economy may be back in party mode, but the huge policy costs of recent years - the stimulus and eight tax cuts in a row - mean it will be a while before the budget is dancing a jig," Richardson said.

Still, price hikes of 55 percent for coking coal, 40 percent for thermal coal and close to a doubling of iron ore prices should see a marked improvement in deficits in subsequent years.

For 2010/11, Access saw the deficit narrowing to 34.5 billion dollars (31.9 billion U.S. dollars), 12 billion dollars (11.1 billion U.S. dollars) smaller than forecast in MYEFO, before shrinking to just 9.5 billion dollars (8.8 billion U.S. dollars in 2011/12, a hefty 21.7 billion dollars (20.1 billion U.S. dollars) improvement.

By 2012/13, the deficit would be 7.7 billion dollars (7.13 billion U.S. dollars), less than half the 15.9 billion dollars (14. 7 billion U.S. dollars) projected by Treasury.

Richardson admitted the forecasts were "best guess" projections, but the key to the outlook was commodity prices.

"Forecasting commodity prices is as fraught as forecasting exchanges rates," Richardson said.

"The emergence of China as a massive player in commodity markets since 2002/03 has added considerably to the volatility of budget outcomes. And there is more volatility ahead."

Still, the likely improvement in the budget bottom line means net debt will peak at 106 billion dollars (98.1 billion U.S. dollars), rather than 153 billion dollars (141.68 billion U.S. dollars), Richardson said.

Access Economics expected Treasurer Wayne Swan will reveal only a relatively small, 5.5 billion dollars (5.1 billion U.S. dollars), improvement in the deficit for the current financial year in his May 11 budget.

Source: Xinhua


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