WHATEVER the fine print of this evening's budget, the Commonwealth's finances are in considerably better shape than seemed likely when the nation battened down the hatches against COVID-19.
There are some fundamental reasons why this is so. First, the COVID recession was the result of an external shock - lockdowns and other virus-control limits on business - rather than anything fundamentally wrong with the economy.
This meant that provided the impact was not too long or too severe, there was little reason why the economy should not gather pace again quickly. The result has been the quicker than expected "V-shaped recovery".
The other big influence on the health of government finances lies in a massive and otherwise unexpected lift in iron ore prices, driven by two main influences.
The first is the rapid recovery of our major customer, China.
The second is a substantial reduction in output from Brazil, our biggest competitor for sales to China, after the tragic Brumadinho dam collapse in 2019.
Higher minerals prices mean more tax dollars.
The delayed 2020 budget delivered in October assumed per-tonne prices of $US55 for iron ore, $US108 for coking coal and $US51 for the Hunter's main product, thermal coal.
Seven months on, and the coking coal forecast looks correct but iron ore is bringing $US180 on greater than expected volumes and thermal coal is bringing $US80, although tonnages are down by about 10 per cent.
Additionally, the Aussie dollar is much lower against the US dollar than is usually the case in resource booms, amplifying the return once the currency is converted.
Analysts say the iron ore increase alone could add $20 billion in a year to tax receipts - money the Morrison government looks more likely to spend than save in what may turn out to be a pre-election budget.
The trick for the Coalition will be to meet the expectation for continued stimulus without running short of money or building in permanent, "structural", costs to the budget, once iron ore and coal prices fall back to more usual levels.
And while it is hardly a new observation, our market interests are running hard up against the realpolitik of deteriorating relations between an increasingly confident China and a correspondingly worried West: a balancing act that shows no sign of becoming any easier.
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