Standard and Poor (S&P) downgraded the rating by two notches from AAA to AA on Monday, citing a weak fiscal outlook; in a move could cost the state more than $10 million a year.
“The lowered rating reflects our view that the COVID-19 pandemic has dealt Victoria a severe economic and fiscal shock that has materially weakened its credit metrics more than domestic and international ‘AAA’ and ‘AA+’ rated governments,” S&P said.
It also pointed to the state’s budget forecast that debt will soar to $154.8 billion by 2023/4—about 28.9 percent of the size of Victoria’s gross state product.
“In our view, the Victorian government’s path to fiscal repair will be more challenging and prolonged than other states because of the significant increase in debt stock projected over the next few years and the state’s more limited flexibility to repair its balance sheet through asset sales and some degree of uncertainty about the government’s policy position with respect to expense management,” S&P said.
The agency had warned both in August and November that there was a “one-in-two likelihood” the downgrade was coming.
Opposition Leader, Liberal MP Michael O'Brien said the downgrade is evidence that the Labor Party only has a plan for debt and waste.
He added, “Blowing the AAA is another sign that Labor’s reckless management is a threat to our state’s recovery that Victorians cannot afford.”
But Labor’s state Treasurer Tim Pallas told a budget estimates hearing last week that the government was putting the interests of Victorians “first and foremost.”
“Whether or not we keep a AAA credit rating is beyond my control. But we will continue to manage our budget in a AAA-rated responsible approach,” Pallas said.
Meanwhile, Louise Staley, the opposition shadow treasurer, has blamed Premier Daniel Andrews and said the decision shows how worried world financial experts are about the Labor government and its ability to manage budgets.
“Successive Victorian governments have managed to maintain Victoria’s AAA credit rating to preserve our international reputation as a responsible manager of government funds and also to minimise interest repayments,” Staley said.
“Considering how many billions of dollars Daniel Andrews and Labor have thrown away on budget blowouts and government waste, it is clear that they now owe Victorians an explanation as to why in the coming years, Victorian taxpayers will be spending millions of dollars servicing debt rather than funding essential services,” she said.
Treasury Secretary David Martine said interest would increase between $1.9 million and $10 million a year if Victoria’s credit rating were to drop to the second-highest level of AA+.
He did not forecast what a drop to AA would cost the state, but the opposition did.
As a result of this downgrade, Victoria will now incur higher interest repayments on the $155 billion of debt included in last month’s State Budget, an O'Brien media release stated.
“This will mean money that would have typically been spent on the provision of government services, such as police, firefighters, teachers and nurses, will be used to service Victoria’s unprecedented debt,” the release said.
Federal Treasurer Josh Frydenberg weighed in on the matter on Monday afternoon, telling The Epoch Times in a statement, “The Morrison Government’s unprecedented economic support has helped to keep businesses in business and Australians in jobs throughout COVID-19.”
“Standard and Poors (S&P) reaffirmed the Commonwealth’s AAA rating on 20 October 2020 and said today’s actions on Victoria and NSW ‘has no direct or immediate effect on the Sovereign rating at this stage,'” he said.
He added, “The Morrison Government’s Economic Recovery Plan will help to create jobs and rebuild the economy to secure Australia’s future.”