Aus­tralian gov­ern­ment rules out rais­ing taxes de­spite bud­get short­fall


Australia’s trea­surer said Mon­day that the low iron ore price was shav­ing bil­lions of dol­lars off gov­ern­ment rev­enue fore­casts, but he would not in­crease taxes to make up the short­fall.

Trea­surer Joe Hockey es­ti­mates that ev­ery US$10 fall in the price of a met­ric ton of iron ore — Australia’s most lu­cra­tive ex­port — cuts US$2.5 bil­lion in tax rev­enue a year for the gov­ern­ment.

The price has fallen from about US$ 100 when Prime Min­is­ter Tony Ab­bott’s con­ser­va­tive gov­ern­ment was elected in Septem­ber 2013 to less than US$48 last week due to weak­en­ing Chi­nese industrial de­mand and in­creased pro­duc­tion.

Hockey sig­naled that plans to re­turn the na­tional bud­get to sur­plus would be de­layed when he an­nounces his eco­nomic blue­print on May 12 for the fis­cal year be­gin­ning July 1.

“There’s no doubt it has an im­pact on our bud­get be­cause iron ore has been our big­gest ex­port,” Hockey told Aus­tralian Broad­cast­ing Corp. tele­vi­sion.

“But we are not go­ing to chase the fall in rev­enue as­so­ci­ated with fall­ing iron ore prices. We’re not go­ing to be im­pos­ing new taxes in or­der to try and re­cover that lost rev­enue,” he said.

The Trea­sury Depart­ment fore­cast in De­cem­ber that iron ore would sell for US$60 a met­ric ton in the next few years.

Hockey told The Aus­tralian Fi­nan­cial Re­view news­pa­per in an in­ter­view pub­lished Mon­day that the gov­ern­ment was now con­tem­plat­ing a price of US$35. It is likely that only min­ing gi­ants BHP Bil­li­ton and Rio Tinto could make a profit at that price.

Australia’s cen­tral bank has set its bench­mark in­ter­est rate at a record low 2.25 per­cent in a bid to stim­u­late an econ­omy that is stalling in the af­ter­math of a min­ing boom that saw the iron ore price peak at US$181 in Septem­ber 2011. A boom in Australia’s two larges ex­ports — iron ore and coal — helped the Aus­tralian econ­omy avoid re­ces­sion fol­low­ing the global fi­nan­cial cri­sis.

Hockey on Mon­day ruled out spend­ing cuts that would counter the Re­serve Bank of Australia’s ef­forts to stim­u­late the econ­omy.

“We are go­ing to have a rea­son­able level of bud­get tight­en­ing, but it’s cer­tainly not go­ing to be in an arm wres­tle with what the Re­serve Bank is do­ing on in­ter­est rates,” Hockey told ABC from New York where he is at­tend­ing a G-20 fi­nance min­is­ters’ fo­rum.

“So we’ve got to get the bal­ance right, but ul­ti­mately what we are go­ing to be able to show is that we are re­duc­ing the deficit de­spite los­ing rev­enue,” he said.

Hockey an­nounced plans last May to re­duce the deficit in the cur­rent fis­cal year to AU$29.8 bil­lion (US$27.8 bil­lion), down from AU$49.9 bil­lion the pre­vi­ous fis­cal year.

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