Treasurer Welcomes Renewal of Australia’s AAA Credit Rating Amid Challenging Economic Conditions

Australian Treasurer Jim Chalmers speaks during a press conference in Brisbane, Australia, on July 22, 2022. (Dan Peled/Getty Images)

Australian Treasurer Jim Chalmers has said that the renewal of Australia’s AAA credit rating by rating agency Standard and Poor’s (S&P) proves the effectiveness of the Albanese government’s “responsible economic management” in the previous year.

On Jan. 30, S&P Global announced that Australia had retained its AAA credit rating while expecting the country to avoid a recession despite the worrying global economic trend.

The AAA rating is the highest credit level assigned by many rating agencies, implying that the subject has an extremely strong capacity to meet its financial commitment.

Generally speaking, a high credit rating level can help a country attract investors interested in purchasing its debt (government bonds) and some other forms of funding (such as foreign direct investment).

It also lowers service costs for government bonds as they have a lower risk of default.

The agency said the assessment was based on the projection of an improvement in Australia’s budget position, with the general government fiscal deficit decreasing over the next two years.

“We forecast the general government deficit will be less than two percent of GDP between 2023 and 2026,” S&P analysts said.

S&P cited Australia’s low unemployment and high energy commodity prices as the leading factors driving the country’s economic growth.

“We expect the budget to improve because of steady revenue growth, high commodity prices and expenditure restraint,” S&P analysts said.

In addition, the agency lowered the forecast for Australia’s government debt to 30 percent of GDP in 2024, down from the previous 34 percent, a level considered modest compared to other countries.

A sign for Standard & Poor's rating agency stands in front of the company headquarters in New York, on Sep. 18, 2012. (Emmanuel Dunand/AFP via Getty Images)

While S&P Global predicted an improvement in the government’s budget, it also expected a slowdown in the Australian economy due to the impact of the Reserve Bank’s interest rate hike cycle.

The agency also said it might have to downgrade Australia’s credit rating in the case of an underperforming economy and rising government spending.

“We could lower our ratings if we believe the general government deficit is unlikely to narrow over the next two years, causing debt and servicing costs to rise,” it said.

Currently, Australia is one of only nine countries receiving an AAA rating from all three major credit rating agencies–Moody’s, S&P and Fitch Ratings.

Treasurer’s Response

Following the announcement, Chalmers said the renewal of Australia’s AAA credit rating was an acknowledgment of the Albanese government’s responsible budget management.

“This is a strong endorsement of the Albanese Government’s Budget and economic plan,” Chalmers said in a statement.

“S&P has recognised Australia’s improving budget balance, spending restraint and reforms to sustain economic growth.”

Copies of the 2022-23 budget papers are handed out to members of the press in Canberra, Australia, on Oct. 25, 2022. (Martin Ollman/Getty Images)

The treasure also touted the Labor government’s approach to budget management and spending discipline.

“Australia’s strengthening fiscal position is a result of our responsible fiscal management which returned the majority of revenue upgrades to the budget while restraining growth in spending,” he said said.

“The government’s spending discipline means payments are forecast to fall in real terms over the next two years.”

As Chalmers expected real government spending to grow by 0.3 percent annually on average in the coming years, he said the fiscal discipline would stabilise the budget and address high inflation.

“We want to avoid putting upward pressure on prices and making the job of the independent Reserve Bank harder.”

Business Groups Call on Government to Limit Spending

As the treasurer praised the government’s efforts in managing the budget, business groups have called for a more sustainable level of government spending.

In a pre-budget submission to the Treasury, the Australian Chamber of Commerce and Industry (ACCI) said the government needed a clear plan for structural budget repair in May while emphasising that such reform should focus on spending restraint rather than tax increases.

“The overriding priority for the government in the May budget must be on reining in spending to sustainable levels rather than increasing taxes,” ACCI CEO Andrew McKellar said, reported the Australian Financial Review.

“The budget has projections for the next decade of revenues at 25-26 percent of GDP–a level normally adequate to run budget surpluses–but spending at unprecedented levels of 27-28 percent of GDP.”

Meanwhile, Shadow Treasurer Angus Taylor criticised Chalmers’ vision for the economy after he published an essay in The Australian, saying that the treasurer had distanced himself from policies such as reducing budget deficits, boosting competition and spending taxpayers’ money productively.

“The Treasurer has abandoned the Hawke/Keating legacy and returned to Whitlam-like objectives, distancing himself from supply-side economic reform and signalling his intention to put the government at the centre of the economy,” he wrote.

Taylor also allegedly said that the Labor government wanted more taxes, red tape and big spending in its economic plan, which would damage the Australian economy under the current inflation levels.