High ore price boosts early budget surplus hopes
HE bagged the surprise election victory and now Scott Morrison is lining up to deliver a surprise budget surplus - the first in a decade.
That's thanks to an extra $4 billion in revenue set to land in government coffers on the back of a rocketing iron ore price.
This financial year the Prime Minister may snatch a surplus from the forecast deficit and next financial year the forecast surplus would be billions of dollars better than expected, analysis by AMP Capital's chief economist Shane Oliver has found.
At the very least this financial year's deficit, forecast in April to come in at $4.1 billion, will be smaller than expected.
"It looks as if that could be revised to say a small deficit, it may even creep over the line to show a small surplus," Mr Oliver said.
In April, Treasurer Josh Frydenberg forecast the 2019-20 surplus would be $7.1 billion, but that was based on a projected iron ore price estimated at $US55 a tonne.
The iron ore export price has almost doubled that figure, hitting a five-year high of $US108 per tonne on Monday night.
Even when Mr Frydenberg handed down his Budget in April his estimate was conservative, with the price of iron ore then around $US89.
"The cost of production of iron ore is $US15 to $US20 per tonne. When it's up around these sorts of levels it's pure profit (for resource companies). Companies have to pay 30 per cent (tax) of their earnings and that flows to Canberra," Mr Oliver said.
If the highs of around $US106 per tonne are maintained, billions of dollars in extra tax revenue will land in government coffers.
"If it stays at this price it could mean $4 billion flowing through to Canberra and therefore an improved surplus for 2019-20."
The extra cash puts the Morrison government in a better position to deliver further stimulus in addition to already promised tax relief.
"You could argue that there is a bit of scope there for more fiscal stimulus," he said. The money could be spent improving on the first home buyers guarantee, by giving new home buyers a grant for their purchase, he added.