In an update this week, the ratings agency said the budget is “already regressing to moderate deficits as public spending hits post-war highs, global trade tensions intensify, and growth slows”.
“How the elected government funds its campaign pledges and rising spending will be crucial for maintaining the rating (AAA/Stable/A-1+),” analysts Anthony Walker and Martin Foo wrote in a note.
They cautioned that commitments from major and minor parties ahead of the 3 May federal election – including cost-of-living relief and housing policies – come as the government confronts escalating trade tensions, economic uncertainty and fast-growing structural outlays in the NDIS, defence, health, aged care and interest payments on debt.
“We believe an overt focus on the central government’s preferred fiscal metric, the ‘underlying cash balance’, coupled with a proliferation of ‘off budget’ spending programs, that are excluded from this metric, is increasingly obfuscating Australia’s fiscal position and borrowing needs,” the pair said.
Pointing to over $100 billion in “off-budget” spending that’s expected between fiscal 2025 and 2029, S&P reiterated its preference for using the annual change in net general government debt to assess fiscal health.
“Our ’AAA’ rating on Australia is supported by the country’s strong institutions, wealthy economy, credible monetary policy, and floating exchange-rate regime. These strengths have ensured the country’s economic resilience throughout the pandemic and prior crises, despite volatile terms of trade and large external imbalances,” Walker and Foo said.
However, asked to comment on S&P’s warning on ABC’s 730 program, Prime Minister Anthony Albanese said: “They must have been beside themselves, whoever wrote that particular report, when the Coalition left us with a $78 billion deficit,” he said.
“We turned that into a $22 billion surplus. We followed that up with a $15 billion surplus.”
Labor maintained its long-standing “responsible economic management” narrative on Monday with the release of its campaign costings, claiming “we have more than offset our campaign commitments in every year over the forward estimates”.
“Because our election commitments are offset in each year over the forward estimates, the underlying cash balance position is slightly better in all four years and cumulatively more than $1 billion stronger than the 2025 Pre-Election Economic and Fiscal Outlook,” a statement attributed to Treasurer Jim Chalmers reads.
“We have engineered the biggest nominal budget turnaround in a parliamentary term on record.”
Labor’s costings include two additional savings including $6.4 billion in savings from cuts to consultants and travel and $760 million from lifting student visa fees to $2,000.
