Money Minute – April 13 2017 “Where is Iron Man?”
Ross Greenwood: Good morning to you Lisa, good morning everyone.
Listen, you want to know how hard it is to do the federal budget, that’s due in less than four weeks time?
In the Treasury offices in Canberra, that old SAP finance modelling system must have steam coming out of it right now with all the different scenarios and moving parts.
Here’s just one chart to show you how tough it is…
This is the iron ore price over the past year – the low point in May last year was $48 a tonne. The high point nearly $95 on February 21 this year.
That jump, 98 percent in just 10 months.
Now back to Treasury – see the steam coming out of the officers there – the problem, the wild swinging iron ore price, is that every $10 rise or fall in iron ore represents $2.5 billion a year in tax revenue.
So if it moved from $48 to $95 a tonne, that’s $11.75 billion dollars, or just on the third of the projected deficit or loss.
$11.75 billion is around half the cost of running the public service, about a third of what the government spends on education.
So you’re see, guessing the price of iron ore correctly is a pretty big thing for Treasury right now.
Back to the chart – you can see what’s happened to iron ore since then though… it’s fallen off a cliff, in free fall overnight.
The price fell another 8.5 percent, $6.34 to $68.
That represents around $1.5 billion dollars in tax revenue – that’s just overnight.
The total fall from the peak of almost $95 is worth a lazy $6.75 billion – that’s money lost from the budget in just eight weeks.
Now be fair, the government and Treasury don’t ride the dips and drops of iron ore.
They generally pick a conservative number, last year around $45 a tonne, and budget from there – which is an improvement of previous even coalition and Labor governments did.
They assume very high figures for iron ore, and spent accordingly – and that’s largely why we’re in the financial mess we’re in today.
The iron ore boom stopped but the spending kept on going.
Let’s have a quick look at market this morning, and what we can see… the dollar under 75 US cents.
Let’s move it forward again, and we can see on commodity markets – gold prices up $1.13 US an ounce.
Overnight the Dow Jones index of US shares right now is off by almost 58 points.
It’s closed right now, and yesterday the all ordinaries index of Australian shares well it was up by 4 points.
Time, now, for entertainment news with Richard Wilkins