The department’s chief economist, Mark Cully, said the growth in demand for commodities was already slowing, in part due to the softer outlook in China as well as a more general cyclical drop-off in world industrial production.
Prices for five of Australia’s six most important commodity exports are tipped to fall by at least 10 per cent in the coming year, more than enough to offset any increase in production.
Exports of both thermal (30 per cent) and metallurgical coal (17 per cent) are expected to suffer the biggest falls in values over the next five years.
Total exports are forecast to drop by more than $20 billion by 2023-24 – the period of the budget forward estimates.
Mr Cully said there were growing risks to the outlook for the commodity sector.
“Trade tensions remain the largest risk to commodity markets, but a deeper than expected downturn in the global growth cycle — now in its ninth year — is also a potential hazard,” he said.
The government has promised to offset all new spending with cuts elsewhere in the budget and to bank all extra tax revenue generated by a stronger economy so as to pay down debt and reach a surplus of at least 1 per cent of GDP “as soon as possible”.
But after breaching that promise in the mid-year budget update last December, the government is expected to rollout more spending next week that will be tied to the surge in commodity exports.
ANZ senior economist Cherelle Murphy said even though commodity prices and a stronger jobs market were feeding extra dollars into the budget, the overall surplus would not be substantially larger than expected as the government would spend up to woo back voters at the election.
There would also make be a political calculation to make life more difficult for Bill Shorten and the Labor Party if it wins the May poll.
“It has little incentive to improve the budget bottom line for the opposition should it win power,” she said.
Prime Minister Scott Morrison, campaigning in Perth where the Liberal Party is fighting to hold five at-risk seats, said the election and budget were all about economic management.
He said everything from holding down a job to the ability to pay school fees would be determined by decisions taken on polling day.
“That’s all going to be determined by the economy you live in in the next decade, and the decision that Australians will make at this next election will determine that environment,” he said.
“People express a lot of opinions on politics … opinions are interesting, but votes change the course of the nation. When people go to vote they’re not expressing opinion, they are actually taking part in what is going to set the economic climate for the next decade.”
Interest in Australian 10-year bonds on Thursday fell to 1.72 per cent, a new record low, on growing fears of a global economic slowdown.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.