A sharply lower iron ore price is expected to wipe billions of dollars from budget projections, forcing both sides of politics to rein in promises when the official pre-election economic update is released on Friday.
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Election 2016: Budget update coming
Less than three weeks after the budget was handed down, there'll be an update prepared without the input of Ministers or the PM. The Age's economics editor Peter Martin explains.
The official update, prepared by the departments of finance and treasury, is unique in that it is signed by the two departmental heads without input from their ministers. It will be followed by a debate between the Treasurer, Scott Morrison, and Labor's treasury spokesman, Chris Bowen, expected in the next few weeks.
Mr Morrison wrote to Mr Bowen on Tuesday offering one debate at the National Press Club, but not ruling out further debates. Mr Bowen had asked for a debate at the Press Club, one on the ABC's Q&A; and a "town hall" debate on Sky News.
![Iron ore's price has slid $US10 a tonne since the budget was prepared.](/web/20160924051941im_/http://www.theage.com.au/content/dam/images/g/o/6/i/u/x/image.related.articleLeadwide.620x349.goxe5d.png/1473726594112.jpg)
The iron ore price has slid $US10 a tonne since the budget was prepared at the start of the month. A sensitivity analysis included in the budget papers shows that for every $US10 a tonne the price falls, Australia's forecast tax receipts slip $1.4 billion in 2016-17 and $3.9 billion in 2017-18.
The budget assumed an iron ore price of $US55 a tonne for the next four years. The assumption was a major upgrade from the $US39 a tonne assumed when compiling the December budget update.
The Western Australian budget, delivered last week, assumed a much lower iron price of $US47.70 when measured on the same basis. It was to steadily increase to $US54 a tonne by 2019-20.
The Treasury is unlikely to revise down its assumption by the full $US10 a tonne because it typically averages its measure of iron ore prices over a number of weeks. Also the Australian dollar is much lower than the $US0.77 assumed at the time of the budget at around $US0.73, which should lift forecast commodity revenues in Australian dollar terms.
Reserve Bank board minutes released on Tuesday show the board was initially uncertain about its decision to cut interest rates at the start of this month, reaching the decision only after considerable discussion. They heightened speculation that the bank would not follow up with a second mid-campaign cut at its June meeting, pushing up the Australian dollar half a cent to $US0.7348
Departmental heads John Fraser and Jane Halton will have the opportunity to make their own comments about the state of the economy in Friday's statement and to comment on the likelihood of budget numbers being achieved. During the 2013 campaign, they departed from what was then the usual budget practice by releasing 10-year as well as four-year budget projections.