S&P Global Ratings cut the outlook on Australia’s “AAA” credit rating to negative from stable as it warned the prospect of fiscal policy gridlock could thwart government attempts to rein in a budget deficit.
The agency acted following the federal election on Saturday last week, which has not delivered either Australian Prime Minister Malcolm Turnbull’s Liberal-National coalition or the main opposition Labor Party a strong mandate, potentially weakening the eventual winner’s ability to push through fiscal savings measures.
“The negative outlook on Australia reflects our view that, without the implementation of more forceful fiscal policy decisions, material government budget deficits may persist for several years with little improvement,” S&P said in a statement yesterday.
There is a “one-in-three chance that we could lower the rating within the next two years,” the credit assessor said.
S&P said the “AAA” could be lost if it believes “that [Australian] parliament is unlikely to legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially and to be in a balanced position by the early 2020s.”
The ranking company also revised to negative its outlook on New South Wales, Victoria and the Australian Capital Territory, the three Australian provincial governments that currently hold “AAA” ratings.
The coalition has so far won 73 seats in the 150-member lower house to Labor’s 66, according to a projection by the Australian Broadcasting Corp, with 82 percent of the vote counted.
Independents and minor parties won five districts, while six areas were still in doubt.
Turnbull needs 76 seats to form a majority government.
Given the outcome of the election “in which neither of the traditional governing parties may command a majority in either house, we believe fiscal consolidation may be further postponed,” S&P said.
S&P provides “important context for the incoming parliament about the reality of the fiscal environment and the global economic environment,” Australian Treasurer Scott Morrison told reporters in a televised news conference.
The government needs “to live within our means when it comes to the fiscal settings of the commonwealth,” he said.
“Fiscal consolidation cannot be postponed or slowed,” Morrison said.
The government in May forecast Australia’s deficit at A$37.1 billion (US$27.9 billion) in the year through June next year, wider than predicted six months earlier.
This deterioration from earlier forecasts has been a constant fiscal feature in Australia since deficit spending began in 2008 to 2009 to combat the global financial crisis and keep the economy out of recession.
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