Declining demand in China is having an immediate impact on Australia’s budget, with the mid-year budget update expected to show that forecast company tax receipts have been downgraded for the first time since the COVID-19 pandemic hit.
According to data from the country’s customs authority, China’s exports and imports fell well short of expectations in November. Imports defied analysts’ predictions, declining by 3.9 percent against expectations of a 0.3 percent rise, the worst performance in nine months.
Exporters, particularly large mining and gas companies, selling less to Australia’s largest trading partner means a reduction in their liability and company tax and royalty payments.
These conditions mean the Mid-Year Economic and Fiscal Outlook (MYEFO), which will be released on Dec. 18, will show that tax receipts have been revised downwards for the first time since 2020 as China’s economy begins to falter.
This will lead to downgrades of $8.5 billion (US$5.4 billion) over the four years to 2027/28, more than twice the cost of the federal government’s energy bill relief for households.
Treasury is expected to reduce the forecast value of mining exports by more than $100 billion over the period.
The federal budget, which passed earlier in May, forecasts a $9.3 billion surplus for 2024/25, followed by consecutive deficits.
‘Pressures Intensifying’: Treasurer
Treasurer Jim Chalmers said a declining Chinese economy would have ripple effects on Australia’s budget, and an uncertain global outlook would cast a long shadow.“Pressures on the budget are intensifying; global volatility is a big part of the story, and you'll see that in the mid-year update,” he said.
“We’re getting the budget in much better nick and building up Australia’s buffers to manage global uncertainty, but we’re not immune from challenges coming at us from around the world.”
Beijing officials are already responding in anticipation of U.S. tariffs and the effect of a prolonged property crisis on household and business confidence by stimulating domestic demand.
In September, the country’s central bank unveiled its most aggressive monetary easing since the pandemic, cutting interest rates and injecting 1 trillion yuan ($140 billion) into the financial system. This marked a major shift in focus for Beijing, which has long focused more on the export-reliant manufacturing sector.
Such measures may assist Australia to some extent by boosting demand for imports of some of its major exports, such as services and agricultural products, but ingrained economic instability is likely to continue suppressing demand for its single largest export: resources.
In 2023, China bought $219 billion of Australian exports, representing 32.5 percent of the total.
The government has warned that an expected deterioration in the budget bottom line will also be impacted by an extra $1.8 billion in compensation payments to veterans.
