Iron ore could help wipe out Australia’s federal budget deficit as soon as 2024

Australia’s federal budget – specifically, federal budget deficit – was a key talking point into the end of last year, after the Morrison government deployed record amounts of stimulus to shield the economy from the pandemic.

The article opens with some bad news: 

"From a forecast surplus of ~$5bn, the government announced a project deficit of $213.7bn for the 2021 financial year."

But with a V-shaped economic recovery and booming commodity prices, UBS reckons that from a projected deficit of $213.7bn for FY21, the government may now be able to get back into surplus as soon as 2024/25.


Bouncing back

The UBS team, led by economist George Tharenou, attributed the “main driver” of budget repair to the strength of Australia’s economic rebound and a healthy jobs market.

Earlier this month, CBA economist Gareth Aird said the consistency of monthly beats in domestic employment numbers had “surprised the entire forecasting fraternity”.

In addition, Australia’s employment-to-population ratio has now rebounded to “near a record high”, UBS said.

More people in work means more people contributing tax revenues (income), and less people in need of JobKeeper support (expenses). UBS added:

"However, a stronger-than-expected global economy contributed to much higher-than-expected commodity prices, especially iron ore."

Importantly, the current price point above $US180/t is around triple the government’s conservative forecast of a fall back to $US60/t, which factors into its federal budget assumptions. As a result, Tharenou said:

"We think higher prices should add at least $20bn to the budget position (and more if sustained ahead)."


Read the full Stockhead article here.


The Latest is where we provide fresh monthly insights into our world of legal, equities trading, corporate advisory, PR and Marketing. Our team have you covered with insights into their respective industries; from top tips to industry patterns and exclusive opportunities.

Subscribe to The Latest now.