Sep 26, 2014

Australian states are losing their AAA ratings. Should we panic?

Don't worry about the AAA rating, writes economist and University of Queensland academic John Quiggin. It's of little consequence for the day-to-day running of a state.

Colin Barnett

The recent downgrading of Western Australian state government debt by ratings agency Moody’s (following a similar step by Standard and Poor’s last year) leaves New South Wales and Victoria as the only Australian states with a AAA credit rating. The responses have been predictable. The WA opposition called on the Treasurer to resign, while business groups called for a program of asset sales to restore the “prized” AAA rating. But what does a AAA rating mean, and is it a sensible goal for governments to pursue?

A credit rating is not a seal of approval for the quality of government in general. As the example of NSW shows, a government can be riddled with corruption and still hold a AAA rating on its debt. By contrast, New Zealand, which routinely tops ratings for governmental transparency and freedom from corruption, has a rating two grades lower at AA.

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3 thoughts on “Australian states are losing their AAA ratings. Should we panic?

  1. Yclept

    That would be the Standard and Poor who brought us the GFC, would it? So their ratings are highly credible.

  2. klewso

    If we were conservative voters we should – when this happened during Labor governance it sure was a problem.

  3. old greybeard

    Yclept, you are much too kind. That would also be Moody’s and Fitch. all apparently incompetent or corrupt in regard to CDOs among other things. As far as I know completely unscathed and unrepentant. Why would anyone believe them?

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