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Our man in China: WA Treasury plan to keep closer tabs on iron ore demand and price

WA Treasury is considering basing one of its officials in China in a bid to improve the State’s price forecasting for iron ore, one of WA’s most important revenue sources.

A review by consultancy Deloitte Access Economics of the Department of Treasury’s revenue forecasting found the agency would gain better insights into iron ore prices if it expanded its engagement with the public and private sectors.

While Deloitte said these “bodies” could include arms of the Federal Government, such as Austrade, Treasury is believed to be weighing options that would include establishing a presence in China.

It is understood the department is looking at a proposal to post one of its officials to the State Government’s trade office in Shanghai to collect information on Chinese demand for the key steel-making commodity.

Iron ore is central to the State Budget, worth between $4 billion and $5 billion a year and accounting for up to 20 per cent of the Government’s overall revenue take.

However, Deloitte Access Economics noted that WA’s reliance on iron ore royalties meant it was inherently exposed to the volatility of commodity prices.

As such, it said the State needed to ensure it was getting the clearest possible picture of iron ore price forecasts.

The review found the gap between the cut-off date for Budget forecasts and the Budget’s release each year was too long and recommended it be shortened in line with other jurisdictions.

“At various points in time over the last decade, WA Treasury has both under and over-estimated iron ore royalty receipts,” the consultancy noted in its report to Treasury.

“Accurately forecasting Western Australian Government revenue is intrinsically difficult, and has become more complex over time.

“Volatility in WA’s economy and revenue base has increased since the turn of the century, largely stemming from growth in the State’s resource sector.”

Under current arrangements, Treasury sought opinions on future volumes and prices from industry and State agencies, but Deloitte Access Economics said it would “benefit” from broader consultation.

Treasury has estimated iron ore prices will average almost $62 a tonne this financial year, and stay roughly at that level for the remaining Budget out-years.

It also notes that for every $1 movement in the price of iron ore over a year, royalties to the State fluctuate $76 million.

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