SYDNEY Dec 19 Australia's conservative
government will on Monday give an update on the national budget
that could trigger a downgrade in the country's prized triple A
credit rating and push up borrowing costs on over a trillion
dollars of debt.
Facing slowing economic growth and a seemingly intractable
deficit, Treasurer Scott Morrison is expected to reaffirm a
pledge to return to surplus by 2020/21 through a mixture of
spending cuts and tax-raising measures.
Many of the most contentious measures, however, are blocked
in the Senate while record low wages growth and lacklustre
nominal growth have badly crimped the government's revenue take.
S&P Global Ratings put Australia on negative watch back in
July and might even cut the rating a notch later Monday should
Morrison's plans fail to inspire.
Australia is among a dozen countries with the top rating
from all three credit agencies.
A downgrade would likely nudge up borrowing costs on the
Federal government's A$465 billion in debt and on some of the
states' A$327 billion of borrowings and lead to Australia's
major banks being downgraded as well as their debt pile mounts
to more than A$500 billion.
It would also be a political nightmare for the Liberal
National government of Prime Minister Malcolm Turnbull, which
has long sold itself as a competent economic manager that can be
trusted to balance the books.
Morrison took to the airwaves early on Monday to essentially
blame the opposition Labor Party for blocking budget savings
measures in parliament, though many of the proposals are deeply
unpopular with voters as well.
The budget update is due at midday and there are
expectations that the A$37.1 billion deficit originally forecast
for the year to June, 2017 could be revised to around A$40
"Australia's push back towards an underlying budget surplus
has felt a bit like "groundhog day". It's there in the forecasts
but continually recedes into the distance," says CBA chief
economist Michael Blythe.
The Treasurer will also have to revise down estimates for
growth after the A$1.6 trillion economy surprisingly contracted
by 0.5 percent in the September quarter, the first shrinkage
However, one bright spot has been a recovery in prices for
many of Australia's major commodity exports, with coal and iron
ore surging in the past few months. If sustained, that will add
billions to the tax take and could ease the pressure on the
And even if the country is downgraded, analysts said they
doubted that it would have much of an impact on bond yields or
"Our feedback from clients across Asia is that they seem
quite relaxed about the issue, with many noting that their
mandates allow purchases of AA rated securities and any rise in
yields would allow them to purchase AUD bonds at better levels,"
said Andrew Ticehurst, an economist at Japanese broker Nomura.
(Editing by Greg Mahlich)