Iron ore prices to boost federal budget

The surging price of iron ore could lead to a federal budget windfall of as much as $6 billion

The Morrison government is looking forward to positive revenue updates on the back of a strong iron ore price, but voters will have to wait for the April 2 budget to find out if they will benefit.

The surging price of the commodity, currently trading around $US87 a tonne, could lead to a windfall of as much as $6 billion, economists say.

Finance Minister Mathias Cormann says this is partly because the coalition has avoided relying on "completely unrealistic" forecasts.

"Over a number of budgets and budget updates we had to downgrade revenue forecasts because the price of iron ore went from about $US120 a tonne down to the mid-40s," he told Sky News on Friday.

"Under our government, we have been much more realistic and much more cautious in terms of our forecasting assumptions when it comes to things like the price of iron ore, and that helps to ensure that ... updates are more likely to be positive, on the upside, rather than to require write-downs."

Senator Cormann declined to say whether any budget windfall would translate to a pre-election sweetener for Australians ahead of a national poll in May.

"It's not much longer to go to the ... first Tuesday in April."

A Westpac market outlook pointed to a pull-back in iron ore prices through 2019 and 2020, to $US75 a tonne towards the end of 2019 and $US65 in late 2020.

However, it said Australia's terms of trade had been rising, as prices for key commodities such as iron ore and coal "surprise to the high side".

"This is boosting profits and tax revenue, resulting in upside surprises to the federal budget position - providing flexibility to boost government spending," the analysis by Westpac senior economist Andrew Hanlan said.