Loan pain on the way
Australia to lose AAA rating
TREASURER Scott Morrison’s midyear Budget update tomorrow is set to seal the deal on Australia losing its AAA credit rating, and could see homeowners paying $720 a year more on mortgages.
Rating agencies will be closely watching the pre-Christmas update, with economists warning that any loss of the AAA rating could see an increase in interest rates of up to 20 basis points.
Mr Morrison will be forced to wear the dubious honour of being Australia’s first Treasurer in three decades to preside over the loss of our AAA status.
But economists say that interest rate increases will not happen overnight, with Australia still regarded as a safe harbour for investment.
“The initial impact of that is a big fat nothing. But the often quoted figure of 20 basis points is probably broadly on the mark,’’ Deloitte’s Chris Richardson said.
“Investors are desperate for somewhere safe to put their money. That doesn’t mean you shouldn’t fight to hang on to the AAA rating.’’
Mr Richardson put Australia’s chance of hanging on to the AAA credit agency rating as “50-50’’.
Homeowners face an increase in repayments of $720 a year on an average mortgage of $360,000, based on a 20basis-point increase. But big borrowers could face rises of $960 a year.
Many Melbourne households are already struggling to make mortgage payments. Berwick has the highest number of people facing mortgage stress, 3922, followed by Essendon, 3783 and Narre Warren South, 3377.
Other suburbs suffering the highest levels of mortgage stress included Sydenham, Epping, Highton, Endeavour Hills and Tullamarine.
Increasingly pessimistic about Australia’s chances of retaining the rating, the Treasurer has sought to blame Labor for blocking savings measures.
“The government received a mandate to deliver further fiscal consolidation,’’ Mr Morrison told the Sunday Herald Sun. “We have already cut the rate of spending growth from 4.2 per cent, as it was under the former Labor government, to around 1½ per cent. By the end of the sitting weeks of parliament this year, we successfully legislated over $21 billion worth of Budget repair measures over the forward estimates to 2019-20, and we intend to build on this.
“The biggest opponent for legislating these Budget improvements is Labor, who by their own admission would prefer the Budget deficit to be $16.5 billion higher. You could be forgiven for thinking Labor are already sabotaging the Budget, to undermine Australia’s AAA credit rating for their own political gain.”
Labor leader Bill Shorten said that Mr Morrison’s attempts to suddenly start blaming Labor for the loss of the credit rating were a joke.
“It’s time for Malcolm Turnbull and Scott Morrison to stop blaming everyone else and start taking responsibility,’’ he said. “They’ve been in government for nearly four years — and the Budget has gotten worse every year.