Moody’s issues federal budget warning

By Tim Stewart

20 April 2016

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Treasurer Scott Morrison’s refusal to raise revenues in the federal budget will make it difficult for Australia to balance its budget, amounting to a ‘credit negative’ for Australia, warns Moody’s Investors Service.

In its latest credit outlook, Moody’s noted Mr Morrison’s focus on curbing spending rather than raising revenue.

“Given previous difficulties in reducing welfare benefits [in the 2014 federal budget], actual spending cuts may be modest,” it said.

“Without [revenue raising] measures, limited spending cuts are unlikely to meaningfully advance the government’s aim of balanced finances by the fiscal year ending June 2021 and government debt will likely continue to climb – a credit negative for Australia.”

Australia may have favourable fiscal metrics relative to its AAA-rated peers, but it has had a “prolonged and marked increase in government debt over the past decade”, Moody’s said.

“During a period of relatively strong GDP growth, Australia’s government debt has risen to 35.1 per cent of GDP in fiscal 2015 from 11.6 per cent 10 years earlier.

“We expect government debt to increase further to around 38 per cent of GDP in fiscal 2018,” the ratings house said.

“The 3 May budget will provide more detail on measures aimed at limiting expenditure growth.

“However, the government’s pledge to curb spending will be tested by significant spending commitments on welfare, education and health.”

Moody’s said that despite a consensus on fiscal consolidation through successive administrations, the government has been unable to reduce expenditures to “significantly below” 36.5 per cent of GDP since 2009.