Australia’s AAA credit rating at risk: S&P

A lack of “political will” and failure to rein in spending were key reasons cited by S&P in September when it cut West Australia’s rating. Photo: Bloomberg

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Ratings agency Standard & Poor’s is warning Australia’s prized AAA credit rating could be reviewed unless substantial cuts are made to the budget in coming years.

In an unusually forthright warning, a lead sovereign analyst for S&P, Craig Michaels, said he was counting on the Abbott government to win Senate approval for at least “some" of its $37 billion in planned savings against opposition from Labor, which has pledged to veto about $18 billion in cuts and tax rises.

“We’re looking to see the government improve budget performance over the next few years," Mr Michaels said in an interview.

If it looked as though “sizeable budget deficits were considered acceptable at the political and the

community level then we might reassess, certainly, government commitment and also potentially the trajectory for public sector debt," he said.

A cut to Australia’s rating would drive up the government’s borrowing costs and be a huge political blow.

S&P’s comments may serve as a wake-up call for opponents of the budget, including Palmer United Party leader Clive Palmer, who argues there is no need for big cuts to the $48 billion deficit because of the AAA rating.

It coincides with a revolt from state premiers enraged by $80 billion in cuts to health and education and a collapse in support for the government after record numbers of voters judged the budget to be unfair and likely to leave them worse off.

However, by emphasising the need for budget repair, S&P has put Australia on notice that its rating is dependent on decisions made today, rather than events of the past. “We’re looking for action," Mr Michaels said.


Category: Credit

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