❓ Mr. Wyatt questions the Treasurer about changes to iron ore royalty calculation methodology and its impact on price assumptions in the 2014-2015 State Budget. The Treasurer confirms the changes result in higher price assumptions and provides alternative price estimates under the previous methodology.
AnsweredQoN 2394Legislative Assembly
QuestionView source ↗
In the 2012-2013 Government Mid-Year
Financial Projections Statement, the Government changed the methodology by
which iron ore royalties were calculated by moving from an assumption that the
quarterly effective price of iron ore reverted to the long-run average in the
final month of the budget outyear to an assumption that this reversion would
happen over the following 8-10 years. In relation to this, I ask: (a) does the Treasurer accept that this change in
methodology has the effect of slowing the decline of the iron ore price to the
long-run average (assuming the price struck for the Budget year is higher than
the long-run average; (b) does the
Treasurer accept that, for the purposes of the 2014-2015 State Budget, the iron
ore price assumptions across the forward estimates are higher than what they
would be if the previous methodology still applied (that is, that the iron ore
price reverted to its long-run average by the final month of the budget
outyear); and (c) what would be the
assumed iron ore price across the forward estimates assuming the previous
methodology still applied (that is, that the iron ore price reverted to its
long-run average by the final month of the budget outyear)?
Financial Projections Statement, the Government changed the methodology by
which iron ore royalties were calculated by moving from an assumption that the
quarterly effective price of iron ore reverted to the long-run average in the
final month of the budget outyear to an assumption that this reversion would
happen over the following 8-10 years. In relation to this, I ask: (a) does the Treasurer accept that this change in
methodology has the effect of slowing the decline of the iron ore price to the
long-run average (assuming the price struck for the Budget year is higher than
the long-run average; (b) does the
Treasurer accept that, for the purposes of the 2014-2015 State Budget, the iron
ore price assumptions across the forward estimates are higher than what they
would be if the previous methodology still applied (that is, that the iron ore
price reverted to its long-run average by the final month of the budget
outyear); and (c) what would be the
assumed iron ore price across the forward estimates assuming the previous
methodology still applied (that is, that the iron ore price reverted to its
long-run average by the final month of the budget outyear)?
AnswerView source ↗
Answered
12 August 2014
Responded by
Hon Dr M.D. Nahan
Response time
61 days
(a) Where the starting point price is lower/higher than the long-term price projection, the rate at which prices increase/decline will be slower.
(b) The iron ore price assumptions in the 2014-15 Budget are higher than they would have been if it had been assumed that the long run iron ore price projection had been reached by the end of the budget period rather than over ten years.
(c) Assuming the long run average price is reached in the final month of the budget period (June 2018), the iron ore price assumptions (on a cost and freight basis) for the 2014-15 Budget would have been $US120.1 per tonne (/t) in 2014-15, $US115.0/t in 2015-16, $US109.8/t in 2016-17, and $US104.7/t in 2017‑18.
(b) The iron ore price assumptions in the 2014-15 Budget are higher than they would have been if it had been assumed that the long run iron ore price projection had been reached by the end of the budget period rather than over ten years.
(c) Assuming the long run average price is reached in the final month of the budget period (June 2018), the iron ore price assumptions (on a cost and freight basis) for the 2014-15 Budget would have been $US120.1 per tonne (/t) in 2014-15, $US115.0/t in 2015-16, $US109.8/t in 2016-17, and $US104.7/t in 2017‑18.
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