Aussie AAA at Risk Prompts Push by Treasurer on Budget Savingsby
Scott Morrison says stymied budget measures need to be passed
Splintered Senate hampers government’s fiscal repair efforts
Australia’s Treasurer Scott Morrison warned of risks to the nation’s top credit rating and urged opposition and minor party lawmakers to back plans aimed at reining in the budget deficit.
Australia’s credit score “remains more generally under risk because of the impact of global parameters hitting our budget,” Morrison said in a television interview on Sunday with Sky News. “It will be difficult to retain that rating under existing economic circumstances, and we’ll work very hard to achieve it, but what makes that job easier is passing savings that restore the budget to balance.”
The government’s bid to repair public finances has been thwarted as the plunge in global commodity prices over recent years has hurt revenue and the end of the mining-investment boom has weighed on economic growth. Budget measures designed to improve the bottom line have also been stymied by lawmakers in the upper house of parliament.
The recent election slashed Prime Minister Malcolm Turnbull’s majority in the lower house to just one, while in the Senate he will continue to be reliant on the votes of either the opposition Labor Party or minor party lawmakers to pass legislation. S&P Global Ratings last month lowered the outlook on Australia’s AAA sovereign score and said that “more forceful fiscal policy decisions” were needed.
“There is a one-in-three chance that we could lower the rating within the next two years if we believe that parliament is unlikely to legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially and to be in a balanced position by the early 2020s,” S&P said on July 7.
While Turnbull had hoped that last month’s election would produce a more pliable parliament, the Senate now appears even more fractious than before. His Liberal-National coalition now holds 30 seats in the 76-member chamber, down from 33 before the poll, while Labor is on 26 and the Greens have nine. The number of other lawmakers has risen from eight to 11, including four aligned with anti-immigration firebrand Pauline Hanson and three for protectionist Nick Xenophon.
Minor party and independent lawmakers combined with the opposition in the last term of parliament to block A$13 billion ($10 billion) of savings measures, jeopardizing Morrison’s push to return the budget to surplus in about five years. Handing down his first budget in May, the Treasurer predicted that the annual deficit would shrink to A$37.1 billion in the 12 months through June 2017, although that was contingent upon a number of measures that remain blocked.
Moody’s Investors Service said in May that “lackluster” nominal growth presents a challenge for the government and warned that “a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks.” Fitch Ratings has underscored the importance of a “credible fiscal consolidation strategy.” The country carries top credit ratings and a stable outlook from both firms.
Credit assessors have made it clear that they’re looking not only at the government’s proposed fiscal trajectory, but also at whether the legislative measures needed are being passed, the Treasurer said on Sunday.
“The government can’t do that in isolation,” Morrison said. Should the Labor Party decline to provide backing for the government’s budget measures then “it’ll fall to the Greens, it’ll fall to the other crossbenchers,” he said.