Tony Abbott says iron ore price collapse blew $30-billion black hole in federal budget

15 Apr 2015,

The federal budget has suffered a $30 billion revenue write-down over the next four years because of the collapsing iron ore price, according to Prime Minister Tony Abbott.

Mr Abbott has revealed the growing revenue black hole at a business lunch in Sydney.

"Since last year's budget, collapsing iron ore prices and the subsequent write-down in tax receipts have already driven a cut in government revenue of more than $30 billion over four years," he said.

After a recent bounce, the benchmark Tianjin iron ore spot price in China crept back just above $US50 a tonne yesterday, but is still less than half the $US117 a tonne it was this time last year and well off peaks above $US180 a tonne in 2011.

Treasurer Joe Hockey has said Treasury is contemplating a price as low as $35 per tonne in its estimates.

Mr Abbott also used today's speech to formally confirm that the Government will not go ahead with a promised company tax cut for big businesses.

But larger companies will not be forced to pay a levy that was designed to help fund the Prime Minister's dumped paid parental leave scheme.

"On July 1, the tax arrangements previously flagged — a company tax cut coupled with an offsetting levy to pay for a more generous parental leave scheme — won't go ahead," Mr Abbott said at the Sydney function.

"I can confirm, though, that the budget will have measures to cut small businesses' tax bills in ways that will stimulate investment, boost productivity, generate new jobs and make existing jobs more secure."

But a tax cut of at least 1.5 per cent will go ahead for small business from this July and small business may also benefit from other measures, including an increased depreciation rate on capital items.

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Australian Chamber of Commerce and Industry chief executive Kate Carnell said big business had been bracing for the blow.

"We're disappointed about the company tax not coming down, although we are very pleased the paid parental leave scheme, as outlined by the prime minister, is not going ahead — we don't think that would have been good for business at all," she told the ABC's AM program.

"We are pleased though that something will go ahead for small businesses who desperately need an injection of confidence, but also an injection of capacity to invest."

Innes Willox from the Australian Industry Group welcomed support for small business, but said company tax needed to come down.

"We need to find ways to make our corporate taxes competitive, we're relatively high among OECD nations for corporate taxation, we need to drive it down," he said.

Mr Abbott also announced earlier this year that his signature PPL wage replacement scheme would not go ahead, just six months before it was due to begin.