Speaking at the annual Association of Superannuation Funds of Australia (ASFA) federal budget luncheon in Sydney, AMP Capital chief economist Shane Oliver said the last time Australia was downgraded from AAA was September 1986.
“It would be a major shame if [Australia is downgraded from AAA again]. When I look at the numbers, I do get concerned,” Mr Oliver said.
Australia’s net public debt as a share of GDP is double what it was in 1986, and the budget deficit as a share of GDP is worse than it was 30 years ago, he said.
In addition, the current account deficit is cycling “as badly as it usually does”, Mr Oliver said.
“So why haven’t we been downgraded? I suspect it’s because other countries are worse than us.
“If we were downgraded, it would signify that all the effort that Australia’s put into the last 20 odd years to reform the economy, make the budget sustainable, prove that we are not a ‘dumb country’ would come to naught. It’s a big problem,” Mr Oliver said.
On April 14, ratings agency Moody’s Investors Service warned that a failure by the federal government to raise revenues would be viewed as a “credit negative”.
But on budget night, the ratings house was more conciliatory, noting that the government’s commitment to surplus by 2020-21 is a “positive”.
“The projected increase in revenues as a share of GDP is based on a return to robust nominal GDP growth which generally comes with a higher revenue intensity of growth. Our forecast for nominal GDP growth is somewhat more muted than the government’s,” said Moody’s.
“We estimate that the adjustment to an environment of lower commodity prices is still underway and will continue to weigh on corporate profitability and wage growth. As a result, improvements in the government’s revenues may be somewhat more muted than currently budgeted.
“The current projections for expenditure as a share of GDP are broadly unchanged from last year’s budget, in contrast with previous upward revisions,” Moody’s said.
“While this denotes the government’s commitment towards curbing spending, the projected fall in spending over the 5-year horizon of the budget is very small.
“This highlights the challenges in achieving significant spending restraint as commitments on education, health, social security and welfare absorb a large part of overall spending,” said Moody’s.
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