Australia’s fiscal metrics ‘broadly weaker’ than peers
Australia’s financial profile is generally weaker than that of AAA-rated peers, but the outlook raises little concern, a leading ratings agency says.
Fitch Ratings, one of the big three firms alongside Standard & Poor’s and Moody’s, highlighted the Labor government’s higher debt and deficits compared to other top European countries facing higher defense spending.
“From our outlook, things still look relatively stable,” Jeremy Zook, the agency’s senior director of credit ratings, said at a briefing in Sydney on Monday.
The federal government deficit is expected to rise to $31.5 billion in the new financial year, alongside a net debt of $616.6 billion, and the financial picture is forecast to remain in the red until 2034/35.
Fitch, which will publish its annual review of Australia’s credit rating later this year, said the country’s debt-to-gross domestic product ratio was about 10 percentage points higher than the AAA country average.
Australia’s rate, which reflects a country’s ability to repay its debts, is around 19 percent.
“Deficits are about twice the average,” Mr. Zook said.
“A picture where the debt ratio remains on a stable path going forward, comparable to a deficit slightly below where we are now, would certainly keep AAA intact.
“The positive for Australia is really on the growth side; we’ve had growth of about two per cent over the medium term, which is slightly stronger than the low end of the European countries, which helps fiscally.”
Private sector investment (except for that already seen in data centers for AI technology) is expected to remain at a relatively good level in the medium term, even if consumer consumption declines.
But productivity output remains an issue for Australia and may depend on the federal government offering policy certainty to the business sector.
Mr Zook said the most important rating sensitivity for Fitch was on the financial side and whether there was a sustained or “fairly significant” increase in debt in Australia.
At the same time, one of the highest costs of the federal budget, other than defense spending, is the National Disability Insurance Program, which currently runs at about $56 billion annually.
The government has pledged to reduce the cost by $37.8 billion over five years.
“The government has of course taken some steps to rein in rising costs there, but we think there may still be some challenges in the long term,” Mr. Zook said.
“There may be some structural pressures.”
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