Iron ore price tumble to punch a $9 billion hole in federal budget

Appearing on the ABC's Insiders program, Dr Chalmers said there will be a degree of difficulty for the May 14 budget that is a "bit higher" than the first two Labor budgets. He is also citing international conflict, a softening of the Australian labour market, and a "substantial" slowing in the economy of Australia's largest trading partner, China.

A modest surplus was delivered in 2023 for the first time in 15 years, but just last month the Treasurer started lowering expectations of both a cash splash and a larger surplus amid cost-of-living pain in the community. Additional cost of living measures has been flagged but not in the magnitude of Labor's stage three tax cuts amendments revealed in January.

The Treasurer is now seeing further deterioration in iron ore markets, the Chinese economy and at home.

"We've seen the iron ore price come off really quite substantially," he told the ABC. "This is a big influence on our budget as you know, not the only influence the labour markets important here as well."

"But the iron ore price was about was more than $130 a tonne at the start of the year. It's been bouncing around in the low $90s.

"To give you a sense of what that means for the budget the difference between $130+ and in the low $90s is something like $9 billion in revenue in the budget."

The Treasury advice states that the iron ore price decline this year had reduced the upgrade to the nominal economy by $35 billion and reduced the upgrade to tax receipts by almost $9 billion over the forward estimates (four years).

Dr Chalmers is heading to the United States this week for high-level pre-budget meetings.

Despite the significant impact, he said delivering a surplus in a month is still the government's goal.

"It's a bit harder now because of the iron ore price and because of what we expect to see with the softening in the labour market, but that's still our goal," he said.

"And that's because the first surplus that we delivered in 15 years last year was an important way to put downward pressure on inflation in our economy. We'd like to have a second one if we can. We're not there yet. The degree of difficulty has gone up a bit."

The Treasury forecasts, which will be published in the budget, will have a downgrade for Chinese economic growth.

"What we're looking at here and the current forecasts, which will be finalised between now and the budget itself, is growth with a four in front of it for three consecutive years in China," the Treasurer said.

"If that happens that will be the slowest period of economic growth in China since they started opening up in the late 1970s. So we expect the Chinese economy to be a bit weaker for a bit longer and that has obvious consequences for us for our economy, but also for our budget."