S&P Says No Immediate Risk to Australia’s AAA Credit Rating

Australia’s top credit rating is not immediately at risk as the coalition government showed commitment to “prudent finances” in last week’s budget, Standard & Poor’s said.

The nation’s stable AAA grade means there’s a less than one-in-three chance of a change to the rating over the next couple of years, Craig Michaels, a Melbourne-based analyst with S&P said in a phone interview. Prime Minister Tony Abbott’s government outlined on May 13 cuts to foreign aid, welfare and the public service as well as a tax on the highest paid as he tries to downsize government and set a path to surplus.

“There is no immediate risk to the rating,” Michaels said. “We see the government as committed to running prudent finances and the budget they released last week reflects that.”

Abbott’s budget measures have drawn criticism from the opposition Labor party as well as state government leaders who face reduced health and education funding. Labor leader Bill Shorten said May 15 his party would oppose changes including to the fuel excise and Medicare.

The Australian dollar was at 93.26 U.S. cents as of 10:42 a.m. in Sydney, from 93.30 cents in New York yesterday, when it fell 0.3 percent.

“It’s not for us to speculate on what the opposition parties might do, but we just look at the outcome,” Michaels said. It’s “way too early” to comment on what S&P may do were the budget to run into difficulty, he said.

Perceptions about Australia’s commitment to medium-term fiscal consolidation could change if key cost saving and revenue raising initiatives are blocked by the Senate, Sally Auld, a Sydney-based senior strategist for currencies and rates at JPMorgan Chase & Co., said in a research note today.

“Such an outcome is unlikely to be viewed favorably by the ratings agencies, meaning that political maneuvering around the budget will be something to watch carefully in the weeks ahead,” she wrote.

Bond markets often disregard rating and outlook changes. France’s 10-year yield, which was 3.08 percent when S&P removed its top rating in January 2012, tumbled to a record 1.66 percent last year.

Before it's here, it's on the Bloomberg Terminal.