Australian Economy

The iron ore bonanza won’t last forever

For all the nightmares visited on China’s staggering residential property sector, iron ore somehow remains the Australian treasurer’s reliable hollow log. There’s been enough momentum in other types of construction, manufacturing, and steel exports to send the iron price to $US145 a tonne, the highest since April 2022 after rising steadily all through last year.

That delivers a huge tax revenue bonus over prices set prudently much lower in the budget, which assumed they would peak at $US105 last year and fall to $US60 this year.

Iron ore demand has shrugged off the troubles of Chinese housing.  Getty

Economist Chris Richardson reckons it will be worth $18 billion over this financial year and next. That means that Treasurer Jim Chalmers will get a headline second budget surplus in May.

These gains are often referred to as an earnings windfall, but really they aren’t. Yes, it depends on the vagaries of changeable global commodities markets. But it is also the result of huge investments by BHP, Rio Tinto, Fortescue and others in turning the Pilbara into an iron ore production machine. That’s given them the scale and efficiency to make profits, and generate tax revenues, at most price points.

Yet there is a huge disconnect in the way politicians are happy to hobble a resources industry that is paying down the budget deficits they have run up, and funding the election handouts that will appear this year. Like many Australians, politicians seem unaware of the source of their own prosperity, saddling the industry with more royalties, giving the unions more power, as if the world had no alternatives. Right now, it’s bonanza time, but that does not mean it lasts forever.

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