But Deloitte Access said since the budget, the iron ore price had soared, climbing $US18 a tonne since the end of November.
Director Chris Richardson said while Australia’s trade war with China was hurting certain sectors such as wine and barley, the increase in iron ore prices meant the federal budget was getting an important financial windfall.
“The bottom line is that China’s trade war with Australia is making us money rather than losing it,” he said.
“To be clear, we’ve lost money on everything from lobsters to wine. But we’ve more than made up that in overall terms thanks to iron ore, and the taxman will be a considerable beneficiary of that.”
Deloitte believes this year’s deficit will be $3 billion better than that forecast in October. Despite that, a deficit of $210 billion would still be the largest in dollar terms on record.
The budget was also likely to benefit from a stronger rebound from the pandemic recession with the number of people requiring the JobKeeper wage subsidy much lower than anticipated.
Mr Richardson said by 2023-24, which was forecast to show a deficit of almost $67 billion, the budget could be up to $15 billion better off.
But he cautioned that with the Reserve Bank taking official interest rates to 0.1 per cent, there was pressure on the Morrison government to deal with budget issues.
“The RBA has its foot to the floor. For the foreseeable future, that says budget policy has to be more agile than it’s been in times past,” Mr Richardson said.
“That means a greater willingness not merely to use the budget that way, but also an understanding that both the public and from the opposition of the day that any such policy moves, such as tax surcharges and discounts and spending shifts, are temporary.”
Commonwealth Bank head of Australian economics Gareth Aird is even more upbeat about the budget, saying since October the iron ore price plus an improved economy would improve the bottom line by $13 billion.
He estimates next financial year could see the budget with a deficit of about $92 billion rather than the forecast $112 billion.
“The size of the projected budget deficits will remain extraordinary. But overall we can look forward to some good news in the mid-year update relative to what was presented in the October budget,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.