Australian govt faces massive loss of revenue after iron ore price collapse

australia-government-debt-to-gdpThe iron ore price in 2011 was $180 per tonne. Today its around $US35 per tonne.

This fall has wiped billions off the worth of two of Australia’s top mining magnates, Gina Rinehart and Andrew Forrest. Rinehart’s estimated worth has dropped from $30 billion in 2012 to around $11 billion.

Forrest’s situation is believed to be much worse, dropping in estimated worth from $13 billion in 2008 to a value some think could be as low as half a billion today.

However the real loser is the Australian govt. Rinehart and Forrest still have some cash in hand. Due to politicians who spent like drunken sailors during the boom and failed to put anything away for a rainy day, the govt is in a disastrous debt situation.

Treasurer Joe hockey is predicting a $30 billion hole in the 2015 budget due to lost iron ore revenues. This will excerbate an already dire situation the Labour govt left behind.

Of the top 17 countries in the OECD, Labour made Australia the country with the fastest growth in spending and the third highest in terms of debt increase.

This years budget has a deficit expected to be somewhere around $123 billion. Accumulated debt already stands at $667 billion.

Leftists are fond of dismissing this debt as being of low import when measured against GDP. However I don’t think measuring debt against GDP is a fair indicator as when govt expenditure is at such huge levels, GDP is such a fluid starting point as to be meaningless. It does make things look better than they are though.

The bottom line is the govt has no way of funding $123 billion of planned expenditure, and its madness.

Here’s what I think is the bottom line. The only way out of this is to create wealth. Govts can’t create wealth. So Hockey has to cut spending and take his tax based jackboot off neck of Australian business and let it do that.

Trying to prop up the crumbling dysfunctional edifice that is government today, made that way through decades of unaffordable socialist polices, only makes things worse.

There is no doubt Rinehart and Forrest know what they have to do in the face of their financial misfortunes. I don’t think Australia’s politicians have woken up yet to what they must do.

And neither have NZ’s.



Categories: Australian Politics, Economics

Tags: , ,

2 replies

  1. The Australian Government got greedy when they introduced the mining super TAX as with all TAXES it has to be passed on to the end user.

    With a competitive global market the end user said no thanks.

    In a few more years the can have a rock star economy just like us.

    Everybody high on welfare and and out of control housing market.

    All waiting around for the party to end and the hangover from hell.

    Like

  2. And who is blocking the necessary spending cuts?
    Labor and the greens, of course.

    Like

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