MELBOURNE (S&P Global Ratings) July 23, 2020–S&P Global Ratings today said the treasurer’s economic and fiscal update released this morning is consistent with the ‘AAA’ rating and negative outlook on Australia (see “Australia Outlook Revised To Negative As COVID-19 Outbreak Weakens Fiscal Outcomes; ‘AAA/A-1+’ Ratings Affirmed,” published April 8, 2020).
The extension and refinement of the government’s JobKeeper wage subsidy program and JobSeeker unemployment benefit are within the tolerances of our current rating, given that the cost of the JobKeeper program to date has been materially lower than originally budgeted in March. We expect the government will continue to implement specific industry support initiatives such as the JobTrainer skills package, HomeBuilder, the arts and culture package, and film and television funding. Nevertheless, we expect that these spending measures will only temporarily weaken Australia’s fiscal metrics.
The ‘AAA’ rating on Australia reflects our expectation that the economy will begin to recover from recession during fiscal 2021. We expect the general government’s fiscal balance to improve during the next few years beyond the large deficit being incurred in fiscal 2021, and believe the government remains committed to fiscal discipline.
Risks to our rating remain tilted toward the downside as the effects of the COVID-19 pandemic and government responses on the economy, budget, and financial markets evolve. The Victorian capital of Melbourne and nearby Mitchell shire on July 9 entered a six-week lockdown in response to a second wave of COVID-19 cases. The lockdown will drag on the national economic recovery in the September quarter by an estimated 0.75%, and potentially the general government budget. We believe that second waves of COVID-19 infections could strike other parts of the country, though other states have been effective in containing the spread so far.
S&P Global Ratings on April 8 revised its outlook on Australia to negative from stable, reflecting a substantial deterioration of the sovereign’s fiscal headroom at the ‘AAA’ rating level. We could lower our rating on Australia if the COVID-19 outbreak causes economic damage that is more severe or prolonged than what we currently expect; for example, if the general government’s large deficit of about 10% of GDP in fiscal 2021 does not revert to its medium-term structural level. Australia’s household indebtedness is at elevated levels, so cautious sentiment and spending could delay the process of repairing the government balance sheet beyond what we currently expect.
S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
You don’t say. Get on with it already. It’s all irrelevant anyway.