Budget woes at mining downturn

Analysts say that a drop in metal prices of up to 16 per cent will affect the Federal Government’s promise of surplus.

With the price of metal exports dropping 11 per cent from May to August  — and suggestions that iron ore income will drop 16 per cent  and coking coal income will slide to 15 per cent this financial year, the budget is set to take a hit, The National Times reports.

Early estimates suggest that even if the price fall stayed at 11 per cent, it would cost the budget $7 billion this year, $14 billion next year and 150,000 jobs.

The downturn was highlighted by miner Rio Tinto yesterday who said that it will find it "increasingly hard" to justify further investment in Australia outside the Pilbara.

Rio Tinto's Australian chief David Peever said falling prices and rising costs made new investments in Australia tough to justify.

He said countries such as the Democratic Republic of Congo, Mongolia and Mozambique, that were once considered too risky or dangerous, were now real options.

''Let's be very clear. Australia now has serious competitors across a number of commodities where we previously held the edge,'' Peever said.

In a further blow to the budget and the economy, the chief of the Bureau of Resources and Energy Economics — which made the forecasts — told a mining conference yesterday commodity prices had peaked and will no longer drive national income growth.

The bureau has cut 10 per cent from its forecast of Australia's mining and energy earnings, predicting a dip of 2 per cent this financial year instead of the previously forecast increase of 8 per cent.

Shadow treasurer Joe Hockey told his party yesterday the cuts would wipe $20-$25 billion from the Commonwealth budget.

The Reserve Bank signalled it was prepared to cut interest rates at its next meeting drawing attention to the slide of commodity prices.

In board minutes released yesterday, it said the slides would be "reflected relatively quickly" in export prices.

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