May 20, 2014

Why Australia could do with having S&P downgrade our credit

A rating downgrade will have little effect on the Australian economy -- and is unlikely to happen anyway, Bernard Keane and Glenn Dyer write.

Is Australia's triple, triple-A credit rating at risk, as today's Australian Financial Review article suggests, with a "wake-up call for opponents of the budget" from Standard & Poor's? No, in short, no matter how much the AFR applies the eggbeater to the yarn to fit the fixation of editor-in-chief Michael Stutchbury that we have a debt and deficit crisis. Indeed, S&P appeared to back right away from the Financial Review's story this morning, saying "there is no immediate risk to Australia's AAA rating". Moreover, it doesn't particularly matter if it did downgrade us. Standard & Poor's is the firm that downgraded the United States government from triple-A in 2011, with the rationale that the gridlock and brinkmanship in the US Congress over the budget had undermined "the effectiveness, stability, and predictability of American policymaking and political institutions". S&P also downgraded France and several other countries on a similar basis. S&P now appears to be laying the groundwork for a similar observation about Australia if the Senate blocks key elements of the Abbott government's budget. We already know that Medicare co-payments, increases in higher education loan repayments and the government's targeting of Newstart recipients will be blocked -- Labor, the Greens and Clive Palmer have all said they'll oppose them. That will eat up more than $6 billion of the $22 billion improvement in the budget bottom line over forward estimates from December "budget crisis!" Mid Year Economic and Fiscal Outlook and last week's budget. And further blocks in the Senate will increase that: while petrol excise indexation and the deficit levy look safe, any other cuts will further reduce the actual improvement in the deficit.

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5 thoughts on “Why Australia could do with having S&P downgrade our credit

  1. Jaybuoy

    down is the new up.. no tax on miners in the production phase but we let them have tax write offs for the construction phase.. we are going to pay polluters to not or whatever..
    chopping down trees is what the true conservator does.. dredging and dumping will make the reefs water quality better..cattle grazing in national parks is good for park..people on Manus and Nauru are carpetbaggers..

  2. AR

    Jaybuoy – you seem obsessed with reality & facts. They are simply doing what Darth Cheney attempted during the neocons’ various wars – making a new reality to fit their beliefs.

  3. Dogs breakfast

    “and that means it’s more than $1 billion a month, every single month, just to pay the interest on the borrowings”

    Crikey, you quote Tony Abbott as saying the above in your editorial.

    Although it’s not a direct lie, it’s damned close to one. In the context of what difference a change in our credit rating would make to the interest payments per month, it is the difference the interest change would make that is relevant, not the whole dollar cost.

    And what about comparing it to the GDP, or perhaps any of the big corporates loans book, or the fact that the private sector debt, at much higher interest rates, absolutely dwarfs the public debt.

    Or what about a comparison to Tony Abbott’s own household balance sheet. Based on a conservative guess at his mortgage to his annual income, I’d bet my bottom dollar that his personal finances look woeful in comparison to the federal budget.

    But TA is no liar. An obfuscator, a conman, a charlatan, a used-car salesman, perhaps, but no liar.

  4. Jimmyhaz

    I’m confused as to why we have a credit rating in the first place. Our sovereign currency means that our fiscal position will have no impact on our ability to secure funding.

    Regardless of the politics or impact of this decision, I just can’t see a reason for us to care about what a private entity rates our zero-risk bonds.

  5. griffin27

    Regarding the cost of being downgraded from AAA to AA, Walker and Walker, in their excellent book (see below), did the figures, and it is minuscule. The extra interest payments are in the order of a few millions per annum. They really do expose this ‘argument’ for various economic policies (privatisation in their case) as being little more than a mantra. Mind you, this mantra is very powerful in its ability to hypnotise economic commentators and even the public.

    Does anyone have the book handy, to look up the actual figures? (“Privatisation — Sell-off or Sell-out? The Australian Experience”, Bob Walker & Betty Con Walker, 2008)

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