From Moody’s:
“The government’s commitment to fiscal consolidation illustrated in a projected return to fiscal balance by 2020-21 is positive. However, the budget projects somewhat wider deficits than expected last year, continuing a succession of revisions in the last five years. These revisions highlight the challenges facing the government in curbing spending and raising revenues in a lackluster nominal growth environment.
“If successful, the announced Ten-year Enterprise Tax plan will contribute to sustain robust growth in Australia, relative to other advanced economies. The budgetary impact is likely to be protracted as the fiscal benefits of support to SMEs will take time to materialize.
“The budget includes a limited number of revenue-raising measures, consistent with the objective of maintaining Australia’s tax burden at low levels.
“The projected increase in revenues as a share of GDP is based on a return to robust nominal GDP growth which generally comes with a higher revenue-intensity of growth. Our forecast for nominal GDP growth is somewhat more muted than the government’s. We estimate that the adjustment to an environment of lower commodity prices is still underway and will continue to weigh on corporate profitability and wage growth. As a result, improvements in the government’s revenues may be somewhat more muted than currently budgeted.
“The current projections for expenditure as a share of GDP are broadly unchanged from last year’s budget, in contrast with previous upward revisions. While this denotes the government’s commitment towards curbing spending, the projected fall in spending over the 5-year horizon of the budget is very small. This highlights the challenges in achieving significant spending restraint as commitments on education, health, social security and welfare absorb a large part of overall spending.
“Despite rising debt levels, the government’s fiscal strength is supported by high debt affordability. However, a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks, in particular a potential marked downturn in the housing sector and a reversal in currently favorable external financing conditions.”
That is, in diplomatic terms, “you’re full of it”. Agencies may be circumspect about any pre-election downgrade owing to the impact on the outcome but all bets will be off afterwards and if the MYEFO is more in line with Moody’s view than the Budget lies (as it will be) then it’s curtains for the AAA.
FYI, here’s S&P:
“Our current rating on Australia is ‘AAA/Stable’. We will look through the details of the budget over the coming weeks. As we’ve previously highlighted, improving budget balances remain important to the rating to offset Australia’s high vulnerability to shifts in offshore financial market sentiment.”
It’s only a matter of when it goes now.
