China’s struggling economy will hit Australia’s company tax take in coming years, but the treasurer has high hopes the nation’s largest trading partner will overcome its malaise.
The Mid-Year Economic and Fiscal Outlook, due on Wednesday, will show tax receipts have been revised downwards for the first time since 2020, largely as a result of lower export revenues to China.
Treasury will downgrade mining exports by more than $100 billion over the four years to 2027/28 in the outlook to be released on Wednesday.
This will lead to $8.5 billion in downward revisions to the budget bottom line over the four years to 2027/28, and is more than twice the cost of the federal government’s energy bill relief for households.
The federal budget handed down in May forecast a $9.3 billion surplus for the 2024/25 financial year, followed by consecutive deficits.
Higher deficits will result in higher interest payments for the government and constrain its ability to afford spending on major policies without increasing the tax base.
Australia isn’t immune to the global headwinds weighing on the economy and the budget, Treasurer Jim Chalmers said.
“The write-down in mining exports that you can expect to see on Wednesday is a reflection not just on prices but also on volumes,” he said.
“Volumes are down largely because the Chinese economy is weaker.”
But Dr Chalmers said he remained optimistic about China and Australia’s ability to benefit from the “stunning transformation” set for its economy in the decades ahead.
‘Their population is ageing, they’re making a huge play when it comes to AI and technology and automation and robotics,” he said.
“We’re already seeing the middle-classing of their economy as their emphasis in the economy shifts from industries like construction to more consumer-focused industries.
“We’ve been a big beneficiary of that and we’ll be a big beneficiary of it into the future as well.”
The government has warned the budget bottom line will be further impacted by an extra $1.8 billion in compensation payments to veterans and to help clear the massive backlog.
The budget faces further blowouts in other “unavoidable” costs in areas such as Medicare, early childhood education and natural disaster responses.
Despite the bleak outlook, Dr Chalmers argued the budget is in better shape than when his Labor government took over, following nine years of coalition rule.
The treasurer pointed to three pillars of the government’s economic plan – near-term cost-of-living relief such as energy price rebates, budget repair including two consecutive surpluses, and economic reforms like changes to the operations of the Reserve Bank of Australia.
“In every budget we take into consideration the pressures as they evolve, and we try and do the best we can to advance our agenda on each of those three fronts,” Dr Chalmers said.
Shadow treasurer Angus Taylor said the government should take responsibility for Australia’s economic downturn, rather than pinning the blame on China.
“The first thing they should do is stop the reckless growth in spending,” he said.
“Households are having to manage their budgets carefully but this government is not managing their budget and that means all Australians have to pay a higher price.”
