Falling iron ore prices may constrain the federal government's ability to post a budget surplus as an election looms.
Iron ore has been the backbone of Australian export revenues for decades, driven especially by demand from China.
The government has had back-to-back budget surpluses since taking power in 2022, but if the price of iron ore continues to fall it may lead to a deficit, IG market analyst Tony Sycamore told AAP.
"We're still above where the budget actually projects iron ore to come in at, nonetheless it is still a hit to the government coffers," he said.
"Whether the federal government can find a way to still report a budget surplus ... it is a very interesting question."
The price of iron ore fell around 7.5 per cent in the past week and reached its lowest level since 2022 on Thursday.
China's steel industry is the largest in the world, but the country's largest manufacturer Baowu announced last week that the downturn in steelmaking would last longer than expected.
According to Betashares economist David Bassanese, the price drop will not necessarily mean budget downgrades but there are risks to Labor in the next election, which has to be held by the around May next year.
"It may limit the scope, you know, for the usual upgrades we've been seeing in the last few years," he told AAP.
"The government won't have a budget bonanza, it won't have the rabbit to pull out of the hat."
The price of iron ore is a reminder that Australia is not immune from volatility in the global economy, Treasurer Jim Chalmers said earlier.
"This is exactly why we take such a cautious and conservative approach to treasury's forecasts for resource prices and revenue," Dr Chalmers said.
"We've always put a premium on responsible economic management, and that's especially important amidst all this global uncertainty."
According to National Party Leader David Littleproud, the government needs to understand that the surplus came from exports like iron ore.
"It shows that the government needs to think about their spending ... the RBA, with the government, has already belled a cat on that," Mr Littleproud said.
"And it's important that Jim Chalmers and state premiers understand that."
