Company tax revenues to fall by $8.5bn amid China slowdown
Wednesday’s budget update will show the first drop in company tax collections since the pandemic, Treasurer Jim Chalmers has said.
Company tax collections are down for the first time since the COVID-19 pandemic, Treasurer Jim Chalmers has said, with the government losing billions in revenue on lower commodity prices and China’s economic slowdown.
The government was expected to downgrade company tax revenue by $8.5 billion over four years to 2027–28 in Wednesday’s mid-year budget update, Chalmers said.
Mining exports would also be downgraded by $100 billion.
“The global economy is uncertain, the global outlook is unsettling and that's weighing heavily on our economy,” Chalmers said in a statement.
“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.”
China is Australia’s largest trading partner. According to statistics from the Department of Foreign Affairs and Trade, $219 billion of exports were bought by China in 2023, or 32.5 per cent of Australia’s total exports to the world.
But as China experiences its slowest growth in 18 months, the price of major exports like iron ore, coal and liquefied natural gas are expected to fall.
“Challenges in the Chinese economy will have flow-on effects for our own budget, and that will be clear in Treasury’s forecasts,” Chalmers said.
The last time company tax collections declined was in 2019–20 during the COVID-19 pandemic.
It comes after the Labor government handed down consecutive budget surpluses of $15.8 billion in 2023–24 and $22.1 billion in 2022–23.
In an interview with Sky News on Sunday, Chalmers said there were now “substantial pressures” on the budget, including $1.8 billion in veterans’ payments, natural disasters, Medicare and early childhood education.
“We’re working through the backlog that we inherited from the Coalition, getting veterans the help that they need and deserve, but it does come with another $1.8 billion price tag,” he said.
“That will be one of the very substantial pressures in the mid‑year budget update, one of a handful of quite significant pressures that we’ve had to account for.”
“But the overall story since we came to office – two surpluses, a huge turnaround in the budget situation that we inherited, much less debt, much less interest on the debt – will show that we’ve made really very, very substantial progress since we came to office.”
Last month, Deloitte forecasted Wednesday’s budget update to show a $33.5 billion deficit, $5.2 billion worse than the $28.3 billion deficit predicted by the government in May.
“If realised, that would represent a deterioration in the budget bottom line of more than $49.3 billion following the $15.8 billion surplus inked in 2023-24,” Access Economics partner Stephen Smith said.
“That stunning turnaround in Australia’s fiscal fortunes would be the largest nominal contraction in the underlying cash balance on record, excluding the pandemic-hit budget of 2019-20.”
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