State’s credit rating fall ‘politically embarrassing’

Rising debt added to the up-front cost of infrastructure, including the stadium, has contributed to Tasmania’s credit rating falling to the worst level of all states.

Ratings agency Moody’s downgraded the island state to Aa3 from Aa2, just weeks after the state budget predicted debt would double to more than $10 billion by 2029.

Credit scores can affect the interest rates states pay on borrowings, and downgrades can potentially lead to higher borrowing costs.

Moody’s said the downgrade was due to a sharp rise in Tasmania’s debt and rising interest costs that would be difficult to contain over the next two years.

The agency noted spending pressures such as election commitments, debt-financed capital projects and health costs for an aging population.

Large-scale investments in energy, port and stadium projects can support long-term growth, but their significant up-front costs increase the debt burden and contribute to pressure on recurring operating expenses, it said.

Restrictions on Tasmania’s ability to generate revenue also contributed to the downgrade.

Finance Minister Eric Abetz said he was not alarmed by the downgrade and pointed out that Moody’s had revised Tasmania’s outlook from negative to stable.

“We have existing debts. It will not increase the interest rate we pay today,” he told reporters.

“This may impact potential future borrowings, but these factors are generally well and truly taken into account by the market before any rating agency makes an assessment.”

Mr Abetz promised to streamline spending by cutting 2,800 public sector jobs and said further austerity would be announced in the May budget.

He has championed infrastructure spending, including plans for a $1.13 billion stadium in Hobart.

“I know future generations will benefit from this investment,” he said.

“Everyday expenses, that’s the problem and that’s what we have to deal with.”

Economist Saul Eslake said the downgrade was politically embarrassing for the government and a vote of confidence in the November interim budget.

But he said regardless of Moody’s statement, Tasmania was already paying more interest due to its financial situation.

The province’s top business leaders have called on the minority Liberals to rein in spending growth and maintain their pledge not to impose new taxes.