CHART: How the iron ore price is tracking against Australia's budget forecasts

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The recent surge in the spot iron ore price has certainly had an impact. Mining stocks have surged, expectations for further rate cuts from the RBA have diminished substantially and, as a consequence, it’s also helped to underpin a substantially rally in the Australian dollar.

And, if the chart below from ANZ is anything to go by, it may well deliver a much needed boost to government revenues in the forward budget estimates should the recent strength be sustained.

The MYEFO [mid-year economic and fiscal outlook] lowered the forecast iron ore price by USD10, to USD39/tonne (FOB), which wiped AUD7bn from the government accounts over the forward estimates,” says ANZ’s economics team, headed by Felicity Emmett.

However, with the recent surge in the spot iron ore price — up close to 40% since the start of 2016 — ANZ has calculated that it has taken the 2015/16 average free on board (FOB) price to about USD44 a tonne, something they believe could increase government revenues in the next financial year by about USD2.5 billion.

In overall terms, ANZ are forecasting an underlying cash deficit of $36.5 billion for 2015/16, something it expects to narrow to $31.5 billion in 2016/17. In the government’s MYEFO released in December last year, treasury forecast a deficit of $37.4 billion for the current financial year, and $33.7 billion for 2016/17.

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