Warning of $4.5bn hit to Aussie economy

Weak commodity prices could deal a $4.5bn blow to Commonwealth coffers, Treasurer Jim Chalmers has warned.

Iron ore and coal exports have slumped massively over the year amid weak steel production in China and declining demand for thermal coal.

“What we’ve seen in commodity markets this year is that iron ore and coal have come off about 40 per cent,” Mr Chalmers told reporters on Sunday.

“When commodity prices weaken like they are now, that’s a real sign of the global economic uncertainty, the risk and volatility in the global economy.

“We know China’s growth has been slow, we know there are concerns around the US, we know that two-thirds of the OECD countries have had a negative quarter, or worse, already.”

He said global economic uncertainty paired with “persistent price pressures” and high interest rates at home were slowing Australia’s economy.

But Commonwealth coffers were also at risk, he said.

“It also has an impact on the budget,” the Treasurer said.

“When commodity prices weaken, it has an impact on our economy but also on our budget.

“One scenario that the Treasury is tracking could see around $4.5 bn lost to the commonwealth’s budget as a consequence of lower commodity prices.”

National accounts data released last Wednesday showed growth in the economy had crawled to a weak 0.2 per cent for the June quarter, or 1 per cent seasonally adjusted for the year.

The Australian Bureau of Statistics said the drop in the price of commodities was a contributor to the anaemic result.

“Mining commodity prices fell for a second consecutive quarter, influenced by reduced global demand for iron ore and coal.”

The Albanese government has delivered two surpluses since coming to power.

But Mr Chalmers stressed the government was “not immune” to falling commodity prices.

China’s steel industry has slowed on the back of its struggling construction and real estate sectors, which make up about two thirds of the country’s total economic activity.

Mr Chalmers earlier told the ABC’s Insiders program he would visit China later this month to hold talks with Chinese counterparts.

“This is all about recognising that there’s a lot at stake and a lot to gain from a relationship which is more stable and stronger and more prosperous,” he said.

“We want to make sure that we are maximising this really important economic relationship with our key trading partner.

“It’s a relationship which is full of complexity, but also full of opportunity and I want to help the government maximise that opportunity for the Australian people, workers, businesses, employers, investors.”

Shadow treasurer Angus Taylor hit out at Mr Chalmers saying his policies were causing the country’s economic woes and cost of living issues.

“If Labor had fought inflation first from when they came into government, then we would have seen inflation come down faster and earlier, and the economy would be in a much stronger position to grow now, without inflation.” he told Sky News’ Sunday Agenda.

“It’s as simple as that, and they have completely failed to do what they said they were going to do.

“They’ve completely failed. Labor doesn’t have the toolkit for the times. Labor’s answer to everything is just throw money at it.”