Friday, November 05, 2010

The high dollar took our Treasurer by surprise

Revenue from the first two years of the Government’s new mining tax will fall short of the $10.5 billion forecast during the election campaign, says Treasurer Wayne Swan.

Speaking to TheHerald in Beijing Mr Swan attributed the downgrade to the rising Australian dollar, which has soared from 85 US cents at the time of the July budget update to more than $US1.00 yesterday, the first time it has stayed above $US1.00 for an entire trading day.

The Aussie opened at $US1.0065 at 9.00 am Australian time after the US Federal Reserve announced it would spend $US600 billion to buy government bonds in an effort to stimulate the economy. It closed at $US1.0049.

Mr Swan said the revenue downgrade was "almost entirely" due to the higher dollar, as the forecasts for commodity prices in US dollar terms remained broadly unchanged.

Asked whether the budget would return to surplus in 2012-13 as had been forecast he said he remained "determined to get the budget back into surplus as rapidly as possible", and was on track to do that "in three years, which is well ahead of any major advanced economy."

"But obviously when economic conditions change... that has an impact on the budget," he added.

The Treasurer will update the budget forecasts in the mid-year economic and fiscal outlook to be released after his return next week.

Indicating other tax collections would also be hit he said the high dollar would have a broad impact as impact as "less profitable exporters meant less tax from those companies".

Mr Swan is one of four Australian ministers who have been in Beijing this week.

Trade Minister Craig Emerson told the Herald/Age yesterday that he and Commerce Minister Chen Deming had agreed to look for “creative ways” to reinvigorate stalled negotiations on a free trade agreement between the two countries and also to try and push forward the Doha round of World Trade Organisation talks.

"In 20 years from 1990 to 2010 exports to China have increased 40-fold, from $1.6 billion to $62 billion, and what lies ahead is at least as breathtaking as what’s been achieved in that short period," he said.

“It hasn’t been a tour designed to bring trophies back to Australia but to establish relationships with my counterparts and to seek new ways of taking forward negotiations bilaterally, regionally and globally,” he said.

Yesterday Mr Swan met with Zhang Ping, head of China’s powerful economic planning commission, and also Vice Premier Li Keqiang.

He said the mining tax revision was an automatic consequence of Treasury’s practise of basing forecasts on the exchange rate at the time.

On July 2 the Gillard Government said major new concessions to the proposed mining tax would cost only $1.5 billion in government revenue in the first two years.

Twelve days later Mr Swan disclosed that the revenue loss would have been much greater if Treasury had not sharply revised up its price forecasts for iron ore and coal.

The revised forecasts showed that over the first two years the original version of the tax would have made $18 billion, a sum the concessions cut to $10.5 billion.

Published in today's SMH and Age

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