Mining Sector Slump Threatens Australia's Federal Budget Deficits

The federal budget in Australia is facing long-term challenges, as the latest Intergenerational Report predicts persistent deficits for the next 40 years due to falling tax receipts. A significant factor in this trend is the expected decline in corporate tax revenue from the mining sector, driven by lower commodity prices.

The Australian Taxation Office’s corporate tax transparency report for 2024-25 reveals that the nation’s largest companies paid $87.5 billion in taxes. The Mining, Energy, and Water sector contributed 41.1% of this total, or $35.9 billion, despite representing only 8.1% of recorded corporations. However, miners paid $12.5 billion less in tax than the previous year due to weaker commodity prices. Rio Tinto and BHP were the top contributors, with tax payments of $5.2 billion and $3.9 billion, respectively.

The petroleum resource rent tax raised $1.9 billion in 2024-25, boosting the oil and gas segment’s total tax paid to $10.6 billion. However, the outlook for the mining sector is less optimistic. According to the Department of Industry, Science & Resources, commodity export earnings are forecast to decline from $422 billion in 2026-27 to $343 billion by 2030-31. Iron ore export earnings are expected to drop from $119 billion in 2025-26 to $87 billion in 2030-31, due to slowing Chinese demand and rising supply from Africa.

The Department of Industry, Science & Resources warns that iron ore prices will continue to fall, averaging around US$88 a tonne in 2026 before easing to US$82 a tonne in 2027. Longer-term forecasts predict prices will drop to US$64 a tonne by 2031. Similarly, LNG export earnings are projected to rise to $70 billion in 2026-27 before falling to $42 billion by 2030-31. The overall commodity export outlook presents a structural challenge for the federal budget, which previously benefited from high commodity prices but failed to utilize the proceeds effectively.