Credit where it’s due

Mid-year Budget update brings cheer

AUSTRALIA is now more likely to keep its triple-A credit rating after the Federal Government’s upbeat mid-year Budget update, economists say.

The government yesterday said the cumulative deficit over the next four financial years was likely to be $9.3 billion lower than forecast when the Budget was released in May.

Analysts said as a result, the threat of credit rating downgrades had “moved into the background”.

But one of the world’s leading ratings agencies, Moody’s Investors Service, cautioned there were lingering risks that could prolong the Budget’s return to surplus.

The government’s mid-year economic and fiscal outlook showed the underlying Budget deficit for the year to next June was now expected to be $23.6 billion. That compares with a $29.4 billion forecast six months ago.

The government still expects a return to surplus in the year to June 2021. But it is now forecasting a surplus that year of $10.2 billion – almost $3 billion more than previously expected.

HSBC Australia chief economist Paul Bloxham said the result was “resoundingly positive” after years of disappointing mid-year Budget updates.

“The threat of ratings downgrade from triple-A, which was prominent earlier in the year, has moved into the background,” Mr Bloxham said.

“With more revenue and less spending than expected the government is projecting narrower Budget deficits and a peak in gross debt that is $23 billion lower than previously expected.”

But in a research note, Moody’s vice-president Martin Petch labelled the Budget improvements as “modest”.

“Moody’s continues to see risks that fiscal deficits will be wider for longer than the government projects,” he said.

“This reflects our expectation for more subdued nominal GDP (gross domestic product) growth than over the past decade, a consequent dampening of revenue generation and a testing climate for spending restraint.”

Business Council of Australia chief executive Jennifer Westacott said the update confirmed business revenue growth was “overwhelmingly driving an improved Budget position”.