Bangkok--11 May--Standard & Poor's
Standard & Poor's Ratings Services said today that its views on the Commonwealth of Australia's (unsolicited rating AAA/Stable/A-1+) sovereign creditworthiness are not immediately affected by the Labor government's proposed 2012 budget.
"The budget broadly continues a strategy of stabilizing the federal government's fiscal position following three successive years of deficits and a rising debt burden," Standard & Poor's credit analyst Kyran Curry said.
The budget foresees federal deficits on a cash basis of A$49.4 billion (3.6% of GDP) and A$22.6 billion (1.5% of GDP) in fiscal year 2010-2011 (ending June 30, 2011) and 2011-2012, respectively. The deficits provide for additional spending to enhance transport infrastructure, participation in education and the labor force, as well as spending on health care and tax concessions for businesses. The 2010-2011 deficit is modestly lower than in 2009-2010, partly reflecting about A$11 billion in lower revenues stemming from the direct and indirect effects of the recent natural disasters in Australia and Japan.
The budget matches our previous expectations of the federal balance returning to a small surplus in 2012-2013 (for more information, please see the full analysis on Australia, published Sept. 23, 2010, on RatingsDirect on the Global Credit Portal). While this estimate does not incorporate the government's plan for a tax on carbon pollution from July 2012, we expect this new tax and related measures to be broadly neutral to the projected fiscal balance. The government now expects gross general government debt to peak at about 16.8% of GDP in 2011-2012, which remains well below the 'AAA' median of 46.4%.
"The deficits and additional borrowings do not alter the sound profile of Australia's public finances, which remain among the strongest of its peer group," Mr. Curry said. "The government's balance sheet has provided flexibility to absorb higher debt levels and cyclical deficits of this nature. However, restoring public finances through a return to surpluses over the cycle and maintaining low debt is consistent with maintaining the 'AAA' rating on Australia. It will also support the government's ability to run additional countercyclical fiscal policy, if required."
The unsolicited 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on Australia reflect Standard & Poor's opinion of the country's ample fiscal and monetary policy flexibility, economic resilience, public policy stability, and its sound financial sector. These strengths are moderated by Australia's high external imbalances, dependence on commodity exports, and the risk of a disorderly housing market correction.
Mr. Curry added: "The most identifiable risk to the ratings on Australia would be an unlikely significant weakening in the credit quality of the country's banking sector, given its role in funding Australia's current account deficits. Although Australia's banks are heavily reliant on external funding, we expect that the banking sector's credit quality will remain sound by international standards. If the banking sector's credit quality deteriorates, downward pressure could intensify on the ratings on Australian banks and, in turn, the ratings on Australia."
Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.
Media Contact:
David Wargin, Washington, DC (1) 202.383.2298,
[email protected]
Analyst Contacts:
Kyran Curry, Melbourne (61) 3-9631-2082
KimEng Tan, Singapore (65) 6239-6350