Australia’s coveted AAA credit rating is at risk with the possibility of a hung parliament following the uncertain election outcome at the weekend.
Australia has again joined a long list of developed countries undergoing political uncertainty as the rise of the disenfranchised populace gains traction. A hung parliament forming a minority government is the most likely scenario in the coming days, though the outcome won’t be known until the vote count resumes on Tuesday.
The most pressing issue for either party however is a likely an uncooperative Senate following the election of a hostile cross bench that includes Pauline Hanson’s right-wing One Nation party, which returns to parliament for the first time in 20-years, and the Nick Xenophon party gaining at least three seats.
This is all potentially negative for Australia’s long-term economic health as the likely uncooperative Senate will make it difficult for government to implement any serious, and much needed fiscal reforms that must pass both the House of Representatives and Senate to become law.
“There is a chance that the ratings agencies change Australia’s credit rating off the election along as the ability and desire for the government to carry out any much needed budget reform will be minimal in such a situation,” IG market analyst Angus Nicholson said.
Global ratings agency Moody’s in April warned the Australian government halting ballooning government spending was not enough to ensure the sovereign AAA rating was maintained, arguing revenue raising measures were also needed to curb growing debt which was a “credit negative”.
The party leaders however pork barrelled their way around Australia with new spending and tax reduction promises, headlined by the governing Liberal-National coalition 50 billion Australian dollar (37.47 billion U.S. dollar) corporate tax cut, grandfathered in over 10-years, that is likened to the former U.S. President Ronald Regan’s principle of “trickle down economics”.
The short-term political uncertainty would have limited implications for the Australia’s credit rating, Moody’s senior vice president Marie Diron told Xinhua in a statement on Monday, as economic momentum remains robust from a favourable external fiscal environment.
“The electoral outcome would effect the sovereign credit profile only if it changed broad policy priorities and the effectiveness of their implementation,” Diron said.
“Looking ahead, trends in Australia’s credit profile will be determined by whether fiscal objectives are effectively implemented, whether external financing conditions remain favourable and how housing market developments affect domestic growth and financial conditions.”
Standard & Poor’s however are not making any comment to the sovereign rating at this stage, a spokesman told Xinhua. S&P have not yet re-affirmed Australia’s AAA rating after examining the detail of the May 2 Budget.
“I do have fears on what the rating agencies may be saying,” Australia’s most popular political leader, New South Wales state (NSW) Premier Mike Baird told reporters in Sydney on Monday, calling on his federal counterparts to put maintaining the AAA rating at the top of their list.
Though NSW state is Australia’s strongest economy and on track to hold no debt by the end of the financial year thanks to a successful asset-recycling program, the current critical Public-Private Partnership (PPP) infrastructure programs are reliant on competitive funding sources.
“The Senate needs to understand… this is not about games or political point scoring,” Baird said.
“It’s critical for delivering the services and infrastructure that every city and state needs.”
Australia’s debt has risen 11.6 percent to 35.1 percent of GDP in the 10-years to 2015, which Moody’s forecasts will increasing to 38 percent of GDP by fiscal 2018.
Though that forecast sits in the median, 40 percent of GDP, of other AAA-rated economies, further debt growth will only add pressure for a credit downgrade. Enditem
By Matt Burgess, Xinhua/NewsGhana.com.gh