by Chris Becker
The fallout from yesterdays MYEFO has been benign, with both major ratings agencies – S&P and Moody’s both confirming Australia’s AAA rating and giving a stable outlook.
The main reason why, near-delusion forecasts by Treasury aside, is that the key net debt-to-GDP figure will still remain under the threshold 30% level and both agencies contending that future deficits will not blowout.
S&P texture:
“While weaker, these revised budget forecasts remain broadly consistent with our base case assumptions that deficits will be moderate and declining, and they do not alter our view that general government debt will remain low relative to GDP.
We note that, while a number of budget policy measures announced in the May 2014 budget are yet to be passed by the Parliament, a large proportion of these have effect from fiscal 2018, which is when public spending is scheduled to rise significantly under existing legislation.
Our current assumption is that further policies will be successfully negotiated over time so that budget performance continues to improve beyond fiscal 2017.″
Bold assumptions.
Here’s Moody’s:
“Although the forecast fiscal deficits are higher and future surpluses lower than announced in May, the trend of declining fiscal deficits and the plan to return to budget surpluses remains intact, and will support Australia’s credit profile. Moreover, according to Moody’s analysis, despite the higher than expected deficits, Australia’s forecast fiscal ratios are consistent with its Aaa rating.”
The latter states that overall debt, including state government debt is still quite low for the typical AAA countries at 32% of GDP (median is 45%) and expects Australia to move up to this median but not further.
Again, bold assumptions given that the adults in charge seem hell bent on delivering and/or continuing policies that will further reduce Australia’s competitiveness and productivity in the low income growth decade ahead.
Watch this space for revisions by the ratings agencies.