S&P repeats : Surplus fail acceptable


Given that H&H had already talked to them earlier this month the following shouldn’t be a surprise to MB readers, but just in case you been taken in by the Australian media shrill today, here is what S&P have to say about the fact that the budget will not be in surplus this FY.

Bulletin: Ratings On Australia Unaffected By Government’s Announcement That A Budget Surplus Will Be Unlikely In Fiscal 2013

MELBOURNE (Standard & Poor’s) Dec. 20, 2012–Standard & Poor’s Ratings Services said today that its unsolicited ratings and outlook on the Commonwealth of Australia (AAA/Stable/A-1+) are not immediately affected by the Commonwealth Government’s announcement today that it is unlikely to achieve a budget surplus in the year ending June 30, 2013. Our base-case scenario assumes that the Commonwealth Government’s conservative attitude to budgeting will persist and forecasts that the Government will run a balanced budget over the medium term, given our expectation of Australia’s economic prospects over the period. Further, public sector debt in Australia remains low. We continue to view the government’s fiscal strength as one of the factors that offset the Australian economy’s weak external position, even if there were to be a budget deficit in fiscal 2013.

We affirmed the ‘AAA’ ratings on Australia with a stable outlook on Sept. 18, 2012. The stable outlook reflects our view that Australia’s public finances will continue to withstand potential adverse financial and economic shocks, and our belief that the country’s consensus in favor of prudent budgetary policies will remain. We could lower the ratings if external imbalances were to grow more than we currently expect, either because the exchange rate no longer adjusts to terms of trade movements, the terms of trade deteriorates quickly and markedly, or the banking sector’s cost of external funding increases sharply. Such an external shock could lead to a protracted deterioration in the fiscal balance and the public debt burden. It could also lead us to reassess Australia’s contingent fiscal risks from its financial sector.

In short, the budget blah is hot air, what matters is Capex, commodities prices, the AUD and economic stability.