Impact of iron ore on tax revenue
The iron ore price has almost halved in the last year
The iron ore industry has been a key driver of economic growth and national income in recent times.
Iron ore investment and exports directly contributed 15 percentage points to economic growth over the past decade, while export values are now 14 times higher at $75 billion.
Australia now accounts for around a third of world production of iron ore.
Of course this means that our national income and government revenues have become much more sensitive to changes in the iron ore price. The iron ore spot price has almost halved since the 2014 Budget as new supply has come on line.
Meanwhile, the outlook for demand has softened, partly reflecting the weakening Chinese housing market, which is a key driver of steel usage.
The fall in the iron ore price has been the largest single contributor to revenue write-downs over the last year. Since the last Budget, the value of forecast iron ore exports has been downgraded by around $90 billion.
This has contributed to lower nominal GDP and has reduced forecast tax collections by around $20 billion.
Most of this downgrade is from taxes paid by mining companies but there will also be an impact on taxes paid by other businesses, income tax and other sources of revenue.