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Treasurer Scott Morrison loaded up the mid-year budget update with bad news in the hope that the budget itself, due in May, will appear to contain good news.
At his instruction, the Treasury has included the recent extraordinary jump in commodity prices in its budget estimates for the current financial year, but not for future financial years, even though it would have been perfectly entitled to.
The mid year budget update has been delivered by the Treasurer and Fairfax Economics Editor Peter Martin explains why Scott Morrison has chosen to reveal a bigger deficit now.
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The mid year budget update has been delivered by the Treasurer and Fairfax Economics Editor Peter Martin explains why Scott Morrison has chosen to reveal a bigger deficit now.
"In recent years, Budget and mid-year update forecasts have used an assumption that commodity prices would remain around a recent average over the forecast period," the Treasury explains in a statement.
"In light of the current exceptional circumstances for bulk commodities, this assumption is not considered prudent at this time. An alternative assumption of a phased reduction in prices from recent levels has been adopted for metallurgical coal and iron ore.
"The metallurgical coal price is assumed to be US$200 per tonne free on board in line with the December 2016 quarterly contract price, before declining through the September and December quarters of 2017 to reach a level of US$120 per tonne in the March quarter 2018.
"This price is consistent with recent industry liaison."
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As a result, the budget position has been revised up for this financial year, but revised down for those that follow. It means that, if commodity prices do indeed turn down, as the Treasury expects, the May budget won't contain a nasty surprise.
If they stay high, as is possible, the May budget will look better than expected.
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It matters that the May budget will be produced when everyone is watching, while Parliament is sitting and TV networks and newspapers are producing special editions. The mid-year budget update is being released more quietly, days before Christmas in a news event that's likely to be forgotten before its properly remembered.
By bringing forward potential bad news, the Treasurer has ensured it will be barely noticed, compared to what he is hoping will be good news in May.