Moody’s warns of downgrading Australia’s AAA rating
(18 April 2016 – Australia) Moody’s Investors Services said warned that Australia’s triple-A credit rating could be at risk if the government doesn’t raise taxes to plug a revenue hole.
The country is one of the few countries to have top triple-A status from all three major credit ratings agencies, with a stable outlook.
However, in a statement Moody’s said:
The 3 May budget will provide more detail on measures aimed at limiting expenditure growth. However, the government’s pledge to curb spending will be tested by significant spending commitments on welfare, education and health. Despite a consensus on fiscal consolidation through successive administrations, the government has been unable to reduce expenditures to significantly below 36.5% of GDP since 2009.
Last Friday, Australia (AAA stable) Treasurer Scott Morrison announced that the budget to be released on 3 May would focus on curbing spending to lower the government’s fiscal deficit. However, given previous difficulties in reducing welfare benefits, actual spending cuts may be modest. Moreover, Mr. Morrison’s announcement excluded measures to raise revenues. Without such measures, limited spending cuts are unlikely to meaningfully advance the government’s aim of balanced finances by the fiscal year ending June 2021 and government debt will likely continue to climb, a credit negative for Australia.
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