Rat­ings threat as po­lit­i­cal un­cer­tainty weighs on Aus­tralia post-polls

The Myanmar Times - - International Business -

A PO­TEN­TIAL hung par­lia­ment is bad news for Aus­tralia’s econ­omy and in­vest­ment mar­kets, econ­o­mists said yest­e­dray, with warn­ings that po­lit­i­cal paral­y­sis threat­ens the na­tion’s cov­eted AAA credit rat­ing.

Fi­nal re­sults from in­con­clu­sive week­end elec­tions won’t be known for days, if not weeks, with mil­lions of postal and ab­sen­tee votes still to be pro­cessed, which could prove cru­cial in a race too close to call.

It adds to the global trend of ris­ing po­lit­i­cal un­cer­tainty, amid con­cern about Don­ald Trump’s run for the White House and Bri­tain’s vote to leave the Euro­pean Union.

De­spite this, mar­kets were un­de­terred with the bench­mark ASX/200 clos­ing 35.2 points, or 0.67 per­cent, higher at 5281.8 while the Aussie dol­lar firmed to 75.04 US cents.

So far Prime Min­is­ter Mal­colm Turn­bull’s Lib­eral-Na­tional coali­tion has won 68 seats to the Labour op­po­si­tion’s 67 while the Greens have one and in­de­pen­dents four, ac­cord­ing to re­sults from the Aus­tralian Broad­cast­ing Cor­po­ra­tion.

That leaves 10 seats un­de­cided with 76 needed to rule out­right in the 150seat House of Rep­re­sen­ta­tives, rais­ing the prospect of a sec­ond hung par­lia­ment in three years, where nei­ther side can form a ma­jor­ity govern­ment.

In­stead, sup­port would be needed from of­ten ob­struc­tion­ist mi­nor law­mak­ers. A sim­i­lar sce­nario is fore­cast for the up­per house Se­nate, which does not bode well for get­ting leg­is­la­tion passed, po­ten­tially caus­ing pol­icy grid­lock. Econ­o­mists said this could stymie ef­forts to rein in debt and deficits, un­der­min­ing busi­ness and con­sumer con­fi­dence with reper­cus­sions for the econ­omy.

“Even if the coali­tion does win govern­ment it won’t have con­trol of the Se­nate with the bal­ance of power re­main­ing with the Greens and mi­nor­ity par­ties which will act as a huge con­straint on the govern­ment,” said AMP Cap­i­tal chief econ­o­mist Shane Oliver.

“The end re­sult will be poor prospects for get­ting govern­ment spend­ing and the bud­get deficit un­der con­trol over the next three years and for the coali­tion im­ple­ment­ing its pol­icy to cut cor­po­rate taxes, let alone un­der­tak­ing se­ri­ous pro­duc­tiv­ity-en­hanc­ing eco­nomic re­forms.”

Aus­tralia is one of only a hand­ful of na­tions to hold the top AAA credit rat­ing from all three ma­jor agen­cies, hav­ing dodged re­ces­sion dur­ing the global fi­nan­cial crisis.

Stan­dard and Poor’s warned it could lower the rat­ing if who­ever wins of­fice is pre­vented from con­tin­u­ing to im­prove bud­get bal­ances.

“Ir­re­spec­tive of the po­lit­i­cal com­po­si­tion of any new govern­ment, we could lower the rat­ing if par­lia­men­tary grid­lock on the bud­get con­tin­ues and Aus­tralia’s bud­getary per­for­mance does not im­prove broadly as we ex­pected a year ago,” it said.

Ri­val agency Fitch said it was wor­ried “po­lit­i­cal grid­lock that leads to a sus­tained widen­ing of the deficit would put down­ward pres­sure on the rat­ing”, while Moodys said bud­get re­pair was crit­i­cal to its out­look.

A down­grade would mir­ror what hap­pened in Bri­tain in the days af­ter its de­ci­sion to exit the EU.

Gen­er­ally, los­ing an AAA rat­ing means the na­tion would be forced to pay higher in­ter­est on its debt.

TD Se­cu­ri­ties an­a­lyst An­nette Beacher said hung par­lia­ments had never his­tor­i­cally been con­ducive to good gov­er­nance and pol­icy re­form and “the risk of los­ing AAA/sta­ble is not in­signif­i­cant”.

“There is a sig­nif­i­cant prob­a­bil­ity that Aus­tralia ex­pe­ri­ences an­other three years of fis­cal pol­icy paral­y­sis,” she said, adding that it would leave the Re­serve Bank of Aus­tralia “as the only pub­lic author­ity with tools to man­age the busi­ness cy­cle”.

The cen­tral bank holds its monthly board meet­ing to­day. With rates al­ready at a his­toric low of 1.75pc, most econ­o­mists do not ex­pect it to in­ter­vene again just yet.

But they see a pos­si­bil­ity of a cut to 1.5pc in Au­gust should of­fi­cial in­fla­tion fig­ures con­tinue to point to be­nign price pres­sures, a sign of a flag­ging econ­omy.

Photo: AFP

Aus­tralian Prime Min­is­ter Mal­colm Turn­bull speaks to the party faith­ful at a Lib­eral Party elec­tion night event in Syd­ney on July 3.

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