CANBERRA, Australia (AP) — Australia's treasurer said Monday that the low iron ore price was shaving billions of dollars off government revenue forecasts, but he would not increase taxes to make up the shortfall.
Treasurer Joe Hockey estimates that every $10 fall in the price of a metric ton of iron ore — Australia's most lucrative export — cuts $2.5 billion in tax revenue a year for the government.
The price has fallen from about $100 when Prime Minister Tony Abbott's conservative government was elected in September 2013 to less than $48 last week due to weakening Chinese industrial demand and increased production.
Hockey signaled that plans to return the national budget to surplus would be delayed when he announces his economic blueprint on May 12 for the fiscal year beginning July 1.
"There's no doubt it has an impact on our budget because iron ore has been our biggest export," Hockey told Australian Broadcasting Corp. television.
"But we are not going to chase the fall in revenue associated with falling iron ore prices. We're not going to be imposing new taxes in order to try and recover that lost revenue," he said.
The Treasury Department forecast in December that iron ore would sell for $60 a metric ton in the next few years.
Hockey told The Australian Financial Review newspaper in an interview published Monday that the government was now contemplating a price of $35. It is likely that only mining giants BHP Billiton and Rio Tinto could make a profit at that price.
Australia's central bank has set its benchmark interest rate at a record low 2.25 percent in a bid to stimulate an economy that is stalling in the aftermath of a mining boom that saw the iron ore price peak at $181 in September 2011. A boom in Australia's two larges exports — iron ore and coal — helped the Australian economy avoid recession following the global financial crisis.
Hockey on Monday ruled out spending cuts that would counter the Reserve Bank of Australia's efforts to stimulate the economy.
"We are going to have a reasonable level of budget tightening, but it's certainly not going to be in an arm wrestle with what the Reserve Bank is doing on interest rates," Hockey told ABC from New York where he is attending a G-20 finance ministers' forum.
"So we've got to get the balance right, but ultimately what we are going to be able to show is that we are reducing the deficit despite losing revenue," he said.
Hockey announced plans last May to reduce the deficit in the current fiscal year to 29.8 billion Australia dollars ($27.8 billion), down from AU$49.9 billion the previous fiscal year.