S&P threatens Australian downgrade on fiscal “gridlock”

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Now it’s getting serious, fresh from S&P:

MELBOURNE (S&P Global Ratings) July 4, 2016–The lack of a clear outcome in the Australian federal election over the weekend has decreased visibility on the future of the country’s fiscal position. As we’ve previously noted, improving budget balances remain important to the ‘AAA’ rating to offset Australia’s high vulnerability to shifts in offshore financial market sentiment.

Our current stable rating outlook on Australia is based on our assumption that Australia’s conservative budgetary policies will continue and result in consistently narrowing deficits over the forecast horizon, maintaining the general government debt near or below current levels. Irrespective of the political composition of any new government, we could lower the rating if parliamentary gridlock on the budget continues and Australia’s budgetary performance does not improve broadly as we expected a year ago.

That’s going to happen anyway by year end on iron ore alone.

Earlier, Moody’s was less explicit:

Moody’s expects fiscal consolidation to remain a key policy objective of the new government, when it is formed.

The electoral outcome would affect the sovereign credit profile only if it changed broad policy priorities and the effectiveness of their implementation.

So was Fitch:

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The close contest could mean a fiscal outlook and set of policies significantly different to those set out in the FY2017 Budget, with negotiations potentially necessary to implement key policies.

AAA is gaaawwwwn.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.