This is not news for MB readers but the AFR has finally caught up today:
Any surge in government borrowing with so-called “good debt” could potentially weaken Australia’s hold on its AAA credit rating because the agencies gauging the nation’s budget credibility are more concerned about servicing costs than the quality of assets underpinning its debt.
…S&P refused to comment ahead of next month’s budget on Treasurer Scott Morrison’s plans to overhaul the way the government accounts for debt – partly to increase his scope to borrow for infrastructure.
However the agency’s ratings methodology clearly indicates that its analysts are bound to emphasise the quantity, rather than quality, of Australia’s debt.
Furthermore S&P warns in its documentation that it is particularly attuned to attempts by governments to shift debt “off budget” to flatter headline deficit numbers.
For that reason, the agency states in its key ratings policy document that changes in the “general government debt stock” as a percentage of GDP is a better indicator of “fiscal performance” than the reported deficit.
“In addition, the headline deficit is sometimes affected by political and other considerations, possibly creating strong incentives to move expenditures off budget,” S&P says in its formal global sovereign rating methodology, which was last updated in late 2014.
The policy document underscores how Mr Morrison’s scope to ramp up borrowing for infrastructure remains heavily constrained by the need to retain the AAA rating.
S&P commented to MB of course.
