02/05/2015 09:54 AST
There is no risk of Australia being stripped of its coveted triple-A credit rating, Treasurer Joe Hockey said yesterday, slapping down speculation the country might be downgraded for the first time in 26 years.
In an interview with Reuters, Hockey said he was confident the economy would extend a run of annual growth that dates back to 1991, and was dismissive of talk that the sovereign debt rating was in danger.
“There is no suggestion of a risk. None. None. We’re not even on negative credit watch,” said Hockey. “I don’t see off-the-cuff commentary from one investment bank as any reliable indicator of where our credit rating is heading.”
Investment bank Goldman Sachs this week warned the rating could come under threat within months because of a change to the way Standard & Poor’s assessed sovereign risk, combined with the outlook for years of budget deficits as a decade-long mining boom winds down.
Australia’s net debt is forecast to rise to A$245bn ($193bn) by the end of the fiscal year in June, but at 15% of gross domestic product it is very low by international standards. Still, the outlook is for debt to grow, with the budget deficit expected to be around A$40bn in 2014/15, with further shortfalls seen over the following three years.
“Clearly we’ve been running budget deficits for longer than expected and it’s proving hard to meet our fiscal targets. That’s the sort of backdrop that does make a ratings agency a little bit nervous,” said Michael Blythe, chief economist at Commonwealth Bank. “With the budget coming up in a couple of weeks, that’s why you’re getting all the focus now.”
The government’s finances have taken a beating as falling prices for iron ore, the country’s single biggest export earner, have eaten into company profits and wages.
The Treasury estimates that every $10 per tonne drop in the iron ore price cuts up to A$3bn off budget revenue. The steel-making mineral has fallen almost $90 since the start of 2014, implying a potential annual hit of A$27bn.
That painful trend has intensified pressure on Hockey to come up with savings or tax-raising measures in his 2015/16 budget, to be released on May 12, while also ensuring that his policies do no harm to an already sluggish economy.
Record low interest rates have helped revive a sluggish property market, but a spike in house prices has prompted a crackdown on illegal foreign buyers.
Earlier this year, Hockey ordered the sale of a $30mn mansion overlooking Sydney’s harbour that was illegally bought by a company controlled by Hong Kong-listed Evergrande Real Estate Group.
“The property that has been reported has been re-sold to an Australian citizen, and we are investigating around 100 other cases,” Hockey said yesterday. “In some cases people are disclosing their own failure to comply with the law.”
Under Australia’s leadership last year, the Group of 20 leading economies (G20) endorsed a set of common standards of sharing bank account information across borders with automatic exchange of information among its members. The US backed that move, but has become concerned about Britain, Australia and others lining up against US digital companies as they seek extra funds to trim budget deficits.
“I understand the concerns of the US government, but they’ve come a long way from the point where they were completely opposed to the proper tax of those entities to the point where they’re reaching into other countries to collect the tax,” Hockey said.
Hockey’s first budget last year proved deeply unpopular and many of its measures were blocked in a divided senate. Hockey had repeatedly warned of a “debt and deficit disaster” when campaigning for office in 2013 and ahead of last year’s budget, prompting critics to accuse him of a scare campaign given basically sound economic fundamentals.
Prime Minister Tony Abbott has promise
Reuters
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