Moody’s Caution on Budget

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Ratings agency Moody’s says Australia still has its Aaa credit rating following the Budget but has warned the economy is vulnerable to shocks.
One of the issues of concern for Moody’s is the forecast that Australia will not return to surplus until at least 2020-21, with the budget still $6 billion in deficit in 2019-20 — about the same amount last year’s budget forecast for 2018-19.

This year’s budget forecasts that by 2018-19, Australia will be more than $15 billion in the red. Both this current financial year’s deficit and the 2016-17 deficit have also blown out from the levels forecast in December’s Mid-Year Economic and Fiscal Outlook. The 2015-16 deficit will now be just under $40 billion, or $2.5 billion higher than MYEFO. The 2016-17 deficit is forecast to be $37.1 billion, up $3.4 billion.

“The government’s commitment to fiscal consolidation illustrated in a projected return to fiscal balance by 2020-21 is positive,’’ said Marie Diron, Senior Vice President, Moody’s Investors Service.

“However, the budget projects somewhat wider deficits than expected last year, continuing a succession of revisions in the last five years. These revisions highlight the challenges facing the government in curbing spending and raising revenues in a lackluster nominal growth environment.”

Moody’s said the Government 10 year economic plan reducing the corporate rate to 25 per cent for all businesses would contribute to robust growth in Australia.
However, the impact was likely to be protracted as it would take more time to materialise for small to medium sized businesses. And any revenue raising measures were “limited”.
It said the government’s fiscal strength was supported by high debt affordability despite rising debt levels.
“However, a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks, in particular a potential marked downturn in the housing sector and a reversal in currently favorable external financing conditions,” it said.

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