Treasurer Josh Frydenberg handed down his first budget on the night of 2 April.

By Daniel Herborn

Posted on April 3, 2019

Ratings agencies Standard & Poor’s, Fitch and Moody’s kept Australia at an ‘AAA’ rating after hearing the details.

This year’s budget anticipates a surplus for the coming financial year. Frydenberg hailed it as the “first surplus in 12 years” but he is unlikely to still be in power if and when it arrives, with his Liberal party facing likely election defeat this year.

Frydenberg predicted a national surplus of A$7.1 billion for the fiscal year ending June 2020, exceeding a December prediction of a A$4.1 billion surplus. The Treasurer said the surplus would come from greater tax revenue and higher export receipts.

Some commentators pointed out that the government had not “delivered” a surplus, but had instead forecast a future surplus. If the surplus is achieved, it will be the first in Australia since 2007/08.

Rating agencies satisfied Australia is on the road to surplus

The projected surplus is then forecast to hit A$11 billion in 2020/21 and A$17.8 billion the following year, before falling to $A9.2 billion in 2022/23.

In a statement, Moody’s said Australia’s national budget position has “improved significantly during the past year” with strong revenue growth, healthy growth in employment and better-than-expected commodity prices.

The ratings agency was positive on the infrastructure spending included in the budget, while asserting that overall spending growth was under control.

Moody’s believe that world economies, including the Australian domestic economy, are likely to slow this year.

“In this climate of slower growth, the impact of still-weak wages growth, lower housing prices and a potential easing of employment growth are key uncertainties for spending and government revenues, though personal tax cuts should help to offset these factors,” the statement continued.

“The budget indicates an ongoing, but modestly slower, pace of fiscal consolidation than was previously indicated,” Martin Petch, Vice-President of Moody’s Investors Service, wrote.

“Overall, Australia’s high levels of debt affordability and moderate debt burden will remain in line with its AAA rated peers.” Standard & Poor’s said that when they last revised their rating outlook for Australia (in September 2018) “there was significant market uncertainty around Australia’s political and future fiscal position”.

The budget has reassured the agency that the government is on track to return to surplus. It pointed to strong commodity prices and trade terms as key factors behind stronger than expected fiscal outcomes.

It also said improved labour market conditions had allowed for the government to lower expenditure compared with previous budgets.

Moody’s had last downgraded Australia’s rating in 2017 due to concerns about the country’s A$1.5 trillion mortgage loans.

“Prudent fiscal management” saw Australia keep its ‘AAA’ rating

Ratings agency Fitch also affirmed Australia’s ‘AAA’ rating and said the budget was generally in line with what it expected when it gave Australia a Stable Outlook in October 2018.

“The budget preserves a path for reaching an underlying cash surplus in FY20. The commitment to prudent fiscal management has been a supporting factor for Australia’s ‘AAA’ rating,” it said in a statement.

The agency believed the income tax cuts included in the budget will provide some support for the economy, which has slowed slightly since the last financial year.

Fitch Ratings also said it believes “there is a general cross-party consensus for sound fiscal management in Australia”.

Australia is one of only seven nations (including the European Union) have ‘AAA’ ratings from Standard & Poor’s, Moody’s and Fitch and a 100 rating from Trading Economics.