FEDERAL Treasurer Joe Hockey says a 20 per cent drop in wheat prices over the past six months has contributed to an unprecedented fall in the national terms of trade.
Mr Hockey released the Coalition’s Mid-Year Economic and Fiscal Outlook (MYEFO) for 2014-15, updating the budget handed down in May.
In painting a picture of a tightening budget, he said “unforeseen events have hit the Australian economy” in the past six months.
“As a result of these recent events tax receipts are expected to fall by $6.2 billion this year and a total of nearly $32 billion over the next four years,” he said.
“In particular, we are now witnessing the largest fall in the terms of trade since records began in 1959,” he said.
“This has been faster and deeper than anyone expected. Our nation’s export income has not been what we expected.
“For example iron ore, which is one-fifth of our nation’s export dollars, has fallen from $120 a tonne at the beginning of this year to around $60 a tonne today.
“The price of wheat, which is one of our largest agriculture exports, has fallen 20 per cent since the Budget.
“In agriculture and resources Australians produce far more than we consume. So we use the export of excess produce and services to build our nation’s income.”
Mr Hockey was asked to quantify the impacts of the drop in wheat prices on the nation’s budget by Fairfax Agricultural Media but was unable to provide an answer, instead taking the question on notice.
But in the media conference, he said income volatility from exports can have a negative impact on the national economy and Budget bottom line.
“When external events turn against us our domestic Budget strength needs to cushion the blow,” he said.
A spokesperson for Mr Hockey later said the 20pc post-budget price fall, combined with a larger than expected decline in wheat export volumes in 2014-15, meant a negative impact on farm incomes over the coming year.
“The fall in farm incomes will translate through to slightly less tax receipts,” the spokesperson said in a statement.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) estimated the value of Australian wheat exports in 2013-14 at $6.1 billion, which will fall to $5.6 billion in 2014-15, with an update expected in March next year.
ABARES September estimates - which were used for MYEFO - estimated wheat would fall from $333 a tonne in 2013-14 to $310/t in 2014-15.
The re-forecast federal Budget will also see government revenue from agricultural levies fall by 3.2 per cent; from $469 million to $454m.
Impacts for farm sector
The government’s cutting or merging of 175 government agencies to help produce efficiency savings has also impacted on agriculture.
The Coalition plans to merge the National Rural Advisory Council with the Agricultural Industry Advisory Council.
The Australian Landcare Council will be transferred to community ownership and control “as it better suits establishment as a representational forum”, the MYEFO document states.
The government will also abolish several bodies and shift any ongoing functions to the Department of Agriculture.
They include: the National Surveillance and Diagnostics Working Group; the Rabies Preparedness Working Group; the Live Animal Export Division — Industry Government Implementation Group; the Forestry and Forest Products Committee; and the HT-J Technical Working Group.
The Coalition said it had already abolished several agricultural bodies with no financial impact, in moves to reduce the size and costs of government.
They were: the Animal Welfare Committee; the Biosecurity Advisory Council; the Food Policy Working Group; the High-Level Group on Drought; the National Biosecurity Committee Stakeholder Engagement Consultative Group; the Primary Industries Standing Committee; the Productivity and Regulatory Reform Committee; the Research, Development and Extension Working Group; and the Taskforce on National Uniform Standards for the Voluntary Microchipping of Horses.
The MYEFO document said the government would also achieve savings of $28,000 in 2014-15 by merging the Vertebrate Pests Committee with the Invasive Plants and Animals Committee and by abolishing the Benchmarks Working Group, once it has completed its terms of reference.
“The government will rationalise laboratory related standard-setting bodies and bring more technical expertise into the Department, resulting in the abolition of the Australian and New Zealand Standard Diagnostic Procedures Working Group; the Laboratories for Emergency Animal Disease Diagnosis and Response Working Group; the National Strategies Working Group; the New Test Evaluation Working Group; and the Sub-Committee on Animal Health Laboratory Standards,” it said.
In other agriculture-related areas, the government said $100 million in funding for drought concessional loans will be partially met by redirecting $10m in unallocated funding from the Drought Concessional Loans Scheme announced as part of the Support to Drought Affected Farmers package in the 2014-15 Budget.
The additional $100m was recently announced by federal Agriculture Minister Barnaby Joyce for drought-affected farmers in NSW and Queensland.
Ag levy revenue down
The re-forecast Budget will see government revenue from agricultural levies fall by 3.2pc, from $469m to $454m.
Mr Hockey and Finance Minister Mathias Cormann also blamed frustrations with passing legislation in the Senate for the deteriorating budget position since May.
The MYEFO paper said around 75pc of the more than 400 budget measures had already been implemented.
But the delay in passing legislation to allow Budget measures to commence has already cost the budget $3.4 billion.
“These delays are hampering progress towards budget repair and result in debt and associated interest payments staying higher for longer than would otherwise be the case,” the MYEFO document said.
“The cost to date of completed and ongoing negotiations with the Senate totals $7.2 billion over the forward estimates.
“These costs are primarily a result of changes required to: repeal the Minerals Resource Rent Tax and associated spending ($6.6 billion); amend the higher education reforms announced in the Budget; and implement the re-instalment of Temporary Protection Visas.
“This brings the total cost to the budget of Senate delays and negotiations to $10.6 billion over the forward estimates.”
Not all doom and gloom
Mr Hockey said over the past 12 months the Australian economy had continued to strengthen “despite significant offshore headwinds”.
He said economic growth has increased from 1.9pc to 2.7pc in that time while export volumes have also increased significantly and job creation across the economy is running at about 15,000 new jobs a month, three times larger than the average.
“Despite many challenges the government has made a good start on Budget repair,” he said.
“There is more work to be done but we are on the right track.
“And a more resilient Budget helps us to better cope with unexpected adversity. So we need a strong Budget to help us have a strong economy.”
On track for surplus
Mr Hockey said the government’s new spending decisions have been offset by new savings.
In particular, defence and national security commitments totalling $1.3 billion are more than offset by savings in our foreign aid budget of $3.7 billion, he said.
“Where we have made savings we have worked hard to ensure that there will be no negative impact on the Australian economy,” he said.
“The Commonwealth Budget is stronger today than it was last year.
“This is despite a fall in expected revenue of around $100 billion since the 2013/14 Budget.
“Debt is projected to be almost $170 billion less than expected one year ago.
“This means $6000 less government debt for every man, woman and child in Australia within ten years,” he said.
“Rather than never ending deficits the Budget is on track for a credible surplus.”