Gillard's budget position may be vindicated yet

THE surging price of iron ore could see the Gillard Government's budget position strengthen, despite reportedly no revenue from the mining tax for the second quarter since its introduction last year.

While The Australian reported on Monday the mining tax had returned no revenue to government coffers for the second consecutive quarter, the price of iron ore has surged from last year's lows to about $158 a tonne.

That increase could see the mining tax make up for at least some of the existing shortfall in tax revenue - and while it may not be enough to return to surplus, it could put a dent in the 2011-12 deficit of $43 billion.

Some economic forecasts have shown a return to stronger growth from Australia's biggest iron ore buyer, with Fitch Ratings' outlook predicting 3% to 4% growth in Chinese iron ore demand.

The Fitch outlook also forecast continued growth in Chinese steel demand, but only of less than 5% for the next few years.

HSBC chief economist Paul Bloxham told APN Newsdesk he expected China's demand for the commodity to be much healthier in 2013 than last year.

He said the current spike in prices was due to three main factors; the rising Chinese demand, a fall in Indian exports and a recent cyclone hindering exports from Western Australia.

And while the surging iron ore price could spell a better position for the government's budget, Deloitte Access Economics predicted in September it would only be temporary.

In its quarterly business outlook, Deloitte economists predicted a "pothole in growth in 2014-15", with the huge mining construction sector to slow before the expanding LNG exports hit their straps.

Topics:  budget, economy, hsbc, iron ore, julia gillard, mining, tax



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