Mike Baird warns individual borrowers will be hit if political instability following the election costs Australia its AAA rating
Mike Baird warns individual borrowers will be hit if political instability following the election costs Australia its AAA rating
(Bloomberg) -- Australia must act fast to counter the “very real prospect” of a sovereign rating downgrade, after a knife-edge national election result escalated concern about fiscal-policy drift, said the leader of the country’s most populous state.
The threat should be addressed as a priority by the incoming government, and is a far more immediate economic concern than the protectionist bias among smaller parties that could end up holding the balance of power in the Senate, said Mike Baird, the Liberal Party premier of New South Wales, Australia’s best-performing economy. A downgrade of the nation’s AAA grade could boost borrowing costs for every household and business in the nation, he said.
“The truth is I’m very concerned,” Baird said in an interview at his office in Sydney, the state capital. “It’s a very important issue -- I think the rating agencies this week have been pretty clear in their warning that this is not something that’s hypothetical.”
Baird was speaking three days after a federal election in which the Liberal-National coalition is in danger of losing its majority; the final results have yet to be determined. Rating companies responded on Monday by saying they would closely monitor the political impact on Australia’s persistent budget deficit, with S&P Global Ratings saying it could lower the rating if parliamentary gridlock on the fiscal front continues.
Prime Minister Malcolm Turnbull’s government in May forecast Australia’s deficit at A$37.1 billion ($27.6 billion) in the year through June 2017, wider than predicted six months earlier. This deterioration from earlier forecasts has been a constant fiscal feature in Australia since deficit spending began in 2008-09 to combat the global financial crisis and keep the economy out of recession.
The state premier expressed optimism that Turnbull’s coalition would continue to govern, either with a small majority or as a minority administration. The result has seen a strong movement to minor parties, which could see neither major party able to build support in the electorate for policies necessary for deficit reduction.
Federal Fears
Rating companies have signaled that “political will and determination to bring budgets back to a sustainable path or to make the expenditure decisions necessary is increasingly important,” said Baird. “My fear at the federal level is what takes place could potentially frustrate that.”
While a sovereign downgrade would also pull down the rating for New South Wales, threatening higher borrowing costs at a time when the state is implementing a major infrastructure program, Baird played down the risk of any change in his state’s plans.
New South Wales forecasts a budget surplus of A$3.7 billion dollars through June 2017, and currently has the capacity to absorb financial shocks, he said. The impact would instead be felt longer-term, as steeper borrowing costs are coupled with a significantly higher health burden.
“Once we get to about 2020, we really start to see some financial pressures,” he said. “That’s still something that’s going to have to be addressed.”
(Bloomberg) -- Australia must act fast to counter the “very real prospect” of a sovereign rating downgrade, after a knife-edge national election result escalated concern about fiscal-policy drift, said the leader of the country’s most populous state.
The threat should be addressed as a priority by the incoming government, and is a far more immediate economic concern than the protectionist bias among smaller parties that could end up holding the balance of power in the Senate, said Mike Baird, the Liberal Party premier of New South Wales, Australia’s best-performing economy. A downgrade of the nation’s AAA grade could boost borrowing costs for every household and business in the nation, he said.
“The truth is I’m very concerned,” Baird said in an interview at his office in Sydney, the state capital. “It’s a very important issue -- I think the rating agencies this week have been pretty clear in their warning that this is not something that’s hypothetical.”
Baird was speaking three days after a federal election in which the Liberal-National coalition is in danger of losing its majority; the final results have yet to be determined. Rating companies responded on Monday by saying they would closely monitor the political impact on Australia’s persistent budget deficit, with S&P Global Ratings saying it could lower the rating if parliamentary gridlock on the fiscal front continues.
Prime Minister Malcolm Turnbull’s government in May forecast Australia’s deficit at A$37.1 billion ($27.6 billion) in the year through June 2017, wider than predicted six months earlier. This deterioration from earlier forecasts has been a constant fiscal feature in Australia since deficit spending began in 2008-09 to combat the global financial crisis and keep the economy out of recession.
The state premier expressed optimism that Turnbull’s coalition would continue to govern, either with a small majority or as a minority administration. The result has seen a strong movement to minor parties, which could see neither major party able to build support in the electorate for policies necessary for deficit reduction.
Federal Fears
Rating companies have signaled that “political will and determination to bring budgets back to a sustainable path or to make the expenditure decisions necessary is increasingly important,” said Baird. “My fear at the federal level is what takes place could potentially frustrate that.”
While a sovereign downgrade would also pull down the rating for New South Wales, threatening higher borrowing costs at a time when the state is implementing a major infrastructure program, Baird played down the risk of any change in his state’s plans.
New South Wales forecasts a budget surplus of A$3.7 billion dollars through June 2017, and currently has the capacity to absorb financial shocks, he said. The impact would instead be felt longer-term, as steeper borrowing costs are coupled with a significantly higher health burden.
“Once we get to about 2020, we really start to see some financial pressures,” he said. “That’s still something that’s going to have to be addressed.”
