Treasury is taking a cautious stance on future earnings from Australia's key export with the price of iron ore now tipped to fall from its lofty heights over the next 12 months.
The federal budget papers assume iron ore will average $US55 per tonne by the end of the March quarter 2020, which would be a 35 per cent drop on this week's price of $US86.
While the price of the commodity was steady for most of 2018, the tailings dam collapse in Brazil elevated its value on the back of supply concerns and this trend carried in to 2019.
As these concerns are addressed "the iron ore price is assumed to decline over the year to reach $US55 per tonne free-on-board by the end of the March quarter 2020", Treasury believes, according to the budget handed down on Tuesday.
Iron ore is the nation's top export revenue earner.
Every $US10 per tonne change in the price impacts government tax receipts.
So if the price remains high beyond March next year, before falling to $US55, the tax coffers could swell by $2 billion in 2019/20 and $2.1 billion in the following year.
If, however, the price falls to $US55 sooner than expected, tax receipts could be shaved by $2.6 billion in 2019/20.
The budget papers also assume the price of metallurgical coal to decline to $US150 per tonne by the end of March next year, from a high average of $US200 in calendar 2018.
However, this outlook is better than Treasury's previous expectation for the price of the country's second biggest export, which is used in steel making, to fall to $US120.
But it will still impact tax receipts in 2019/20, costing almost $1 billion.
Meanwhile, the price of thermal coal is expected to remain around a strong $US91 per tonne, which reflects demand for the nation's high grade coal despite the confusion surrounding Chinese policy on clearances for Australian product at its ports.
All of the commodity price expectations detailed by Treasury in the budget underpin the government's expectations for tax earnings from the export of Australia's key resources.
It also assumes an Australian dollar exchange rate of around 71 US cents.
Mining exports are projected to expand by 4.5 per cent in 2019/2020, as major liquefied natural gas projects ramp up production, the budget papers say.
