Resources industry expected to drive revenue boost in tomorrow’s Budget
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Resources experts expect tomorrow’s federal budget will unveil a revenue boost due in part to rising commodity prices.
“I think one of the themes is probably going to be an upward revision to revenue, and one of the drivers there will be commodity prices have been probably better than the government forecasts have been expecting,” UBS commodities analyst Lachlan Shaw told Stockhead.
“We’ll have to wait and see what the government numbers and the forecasts are on commodity prices, but as far as we’re concerned we still see a pretty constructive commodity price environment in Australia.”
Producers of iron ore and thermal and metallurgical coal inparticular have been doing the heavy lifting, Mr Shaw said.
“The Australian producers tend to be producing better quality product that typically makes higher profit and they are also typically towards some of the lowest-cost globally,” he said.
“From that point of view higher prices should drive better profitability in the mining sector and better profitability will in turn drive better taxation receipts for the government.”
UBS sees both thermal and metallurgical coal remaining at historically strong levels.
While the spot price may trade slightly lower, seaborne trade will continue to remain tight and the Chinese government is expected to continue the reform of its coal sector.
The spot price of iron ore is trading around $US65 per tonne and UBS expects that to hold for the next four or five years.
“If the government comes out with a more constructive view on world growth — or they come out with a more constructive outlook for the resource sector overall and commodity prices — then obviously the smaller producers more often than not have higher leverage into those types of macro drivers,” Mr Shaw said.
Government push for corporate tax cuts
Very little is expected in the way of surprises for the resources sector in the federal budget when it is released on Tuesday.
There could, however, be some tax relief for businesses in general if the government convinces the Senate to pass legislation for tax cuts.
“The government has been trying to push through a cut in the corporate tax rate. So far they haven’t got enough support in the Senate,” Mr Shaw said.
“There’s a chance we’ll see some further changes around that legislation and if that then gets through the Senate that’s pretty obviously beneficial to all businesses in Australia.
“Any agreements from the Senate to push through company tax cuts will probably benefit small to medium businesses first.”