S&P warns Australia’s AAA rating at risk from election promises
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Australia is among just a handful of countries in the world to hold a AAA rating from all three agencies — S&P, Fitch Ratings and Moody’s Investors Service.
S&P Global Ratings warned Australia's prized AAA sovereign credit rating may be at risk if election campaign pledges result in larger structural deficits, debt and interest costs, highlighting fiscal pressures facing the next government.
"The budget is already regressing to moderate deficits as public spending hits post-war highs, global trade tensions intensify, and growth slows," analysts Anthony Walker and Martin Foo wrote in a note on Monday. "How the elected government funds its campaign pledges and rising spending will be crucial for maintaining the rating."
Australia's major parties have made large spending commitments during a tight campaign ahead of Saturday's election, from setting aside billions of dollars to build new homes for first-time buyers to tax cuts and higher health spending. S&P also pointed to more than A$100 billion ($83.98 billion) in "off-budget" spending that's expected between fiscal 2025 and 2029 to reinforce its fiscal concerns.
Goldman Sachs Group Inc. said last week that Australia's fiscal policy is likely to be more expansionary under the centre-right opposition than the ruling Labor Party, highlighting the proliferation of election spending promises.
"Sound fiscal management across multiple governments over several decades underpins our 'AAA' rating on Australia," the S&P analysts said. "Sound fiscal outcomes have ensured Australia's debt metrics remain a key rating strength."
Australia's fiscal balance is projected to tip back into deficit in the year-ending June 2025, after two consecutive surpluses. At the same time, the nation's state governments are spending heavily as well.
"This could drive the general government fiscal deficit wider to 2%-2.5% of GDP, a level rarely seen since the immediate aftermath of the global financial crisis (outside of pandemic-affected years)," S&P said. "If major election commitments aren't funded via additional revenues or savings, the deficit could widen further."
Australia is among just a handful of countries in the world to hold a AAA rating from all three agencies - S&P, Fitch Ratings and Moody's Investors Service.
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