Stronger than expected coal and oil prices will help boost the corporate tax take by $5.2 billion over the next four years.
Company tax receipts are expected to rise 22.1 per cent this year and another 6.7 per cent next year and Treasury says higher commodity prices are the key reason.
Iron ore, Australia’s biggest export, remained strong at $US67 a tonne in the March quarter and after a recent fall is expected to stay at its current level of about $55 a tonne for the next four years. That is roughly what Treasury expected six months ago in the mid-year economic and fiscal outlook.
The surprise good news is in coal, with metallurgical coal expected to remain strong for longer. It had been expected to be down to $120 a tonne by now but Treasury says it won’t fall that low until the end of the year.
Similarly, thermal coal has done better than expected and will remain at $93 a tonne over the next four years, based on its recent average and the expected Japanese fiscal year contract price.
With gas export prices linked to oil, the recent high Australian dollar price of crude is also expected to boost taxes from LNG exports by $1 billion over the next four years.
Treasury says China’s policies to reduce pollution are a major reason the iron ore price has remained buoyant.
Australia produces some of the highest grade and lowest impurity iron ore. This allows for more efficient production, reducing emissions and requiring less energy. This is now crucial because “government-mandated measures to combat pollution have incentivised energy conservation”.
Steel margins in China are high at present, which allows for the purchase of pricey Australian iron ore. This situation might change but China’s emphasis on environmental factors is likely to be a long-term structural change in Australia’s favour.
“Australia’s exposure to low-grade production is being buffered by its higher quality output. Lower impurities in much of Australia’s iron ore are providing a comparative advantage over other key global iron ore producers.”
Treasury stresses that commodity prices are volatile. For instance, if metallurgical coal prices fall to $120 a tonne next month, rather than at the end of the year, it will cost the budget $800 million.
Despite the good news on commodity prices, mining investment continues to fall – albeit at a slower rate. After reaching a giddy peak in 2012 at the height of the mining boom it is down 65 per cent. It is expected to decline 7 per cent in 2019 after diving 11 per cent last year. No upturn is expected until 2019-20.