The Abbott government is facing the possibility of a multi-billion dollar hit to budget revenues after the global iron ore price collapsed overnight.
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It means Treasurer Joe Hockey's budget repair task could become even tougher, after he endured a $20 billion write-down in forecast tax collections in May.
The global iron ore price plummeted to $US44 a tonne this week - the lowest for recent records - with Australia's major iron ore producers exporting the commodity in record volumes despite weak global demand for it.
The precipitous fall in the price of iron ore has added to a sense of panic in global markets, with China's stock market in seeming freefall and Greece's banking system seizing up after its government defaulted on a multi-billion euro loan from the International Monetary Fund last week.
Now economists are warning that Commonwealth government tax receipts could shrink by another $6.5 billion over the next two years - with implications for federal budget deficit - if the iron ore price remains near its record low.
Westpac senior economist Justin Smirk says the record-low price, at $US44 a tonne, is actually worth far less than the $US48 a tonne assumption that underpins key economic forecasts in the federal budget.
He says the real iron ore price is closer to $US36 a tonne, once freight costs and exchange rates are taken into account, with serious ramifications for Commonwealth tax receipts and the deficit.
That also means that a gloomy theoretical scenario in the budget papers - showing a multi-billion dollar hit to revenues if iron ore prices lose $US10 a tonne in value - is already threatening to come true.
Mr Smirk says he is forecasting the iron ore price remaining around these record-low levels for some time, but he also acknowledges that they could fall lower.
"We're watching and looking and thinking what the next move will be," he told Fairfax Media.
ANZ chief economist Warren Hogan agreed the federal budget would be under pressure if iron ore prices remained at these record-low levels.
"But the impact's going to be measured in weeks and months, not days," Mr Hogan said.
"It just depends how much [iron ore] volume is traded at these low prices. If this turns out to be a short-term financial glitch and the Chinese situation cranks itself up and iron ore goes back towards $US60 a tonne, then the events of the last couple of weeks don't have a lot of implications.
"But if this is sustained below $US50 a tonne then you'll see further downward revisions and this'll take out of the budget as well."
Deloitte Access economics director Chris Richardson warned in December that the glory days of "budgetary boom" had passed when the iron price was close to $US70 a tonne.
Mr Richardson warned that the economic backdrop "may yet carve even bigger dollars out of the budget than we've already allowed" if it fell below that level.
According to the Reserve Bank, iron ore exports account for nearly one-fifth of the value of Australia's exports.
