Australia's AAA rating not at risk right now, but deepening debt a problem, says S&P | The Business
One of the S&P analysts behind the note warning about the risks posed by election spending promises, Anthony Walker, spoke to The Business to discuss his note warning that Australia’s triple-A credit rating could come under pressure if the government and opposition didn’t take action.
“The triple-A is not at risk, it’s on stable outlook. We don’t expect to change it. What we were highlighting, though, was the missing part of the conversation at the moment.
“We’re seeing election spending going on. We’re seeing revenue headwinds when it comes to global trading conditions, as well as global growth. But where’s the money going to come from to spend on these election commitments?
“Particularly going forward, when you’ve got rising health, education, pension, NDIS and defence spending, there’s a lot of pressure there, and we’ve got new spending on top of that, including off-the-budget spending.
“So the question we were raising is, where’s the money coming from? Is anyone going to tell us? Is it coming from savings new taxes, or are they going to debt fund it by higher deficits going forward?”
Mr Walker said he expects deficits going forward of around 2-2.5% of GDP, but weaker economic conditions and election spending commitments could blow that out.
He warns that if the deficit ends up doubling to 4-5% of GDP over the next decade then the triple-A rating “could come under pressure”.
Mr Walker also discusses why Australia’s credit rating is important, saying the rating is crucial for funding conditions and cost of capital, in other words, interest rates.
“If the sovereign was to be lowered to double A plus, that would likely lead to a higher interest costs for the government. Why that’s important for everyone else is… if the government’s cost rises, everyone’s costs will rise, and that will be passed on to households as well.”
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