To the amazement of many of the country’s economic policymakers, ratings agency Standard & Poor’s have imposed a qualified AAA stable credit rating on Australia.
Yes, S&P reaffirmed Australia’s AAA stable rating yesterday, but in discussing possible reasons for a ratings down grade in the future, said “we could also lower the ratings if significantly weaker than expected budget performance leads to net general government debt rising above 30% of GDP.”
That got some in the media excited, and Treasurer Joe Hockey too, who grabbed at the statement with the enthusiasm of the drowning for a lifeboat in an interview with AFR’s Phil Coorey. Hilariously, Hockey dared to refer to “an assumption of bipartisan support to fix the budget’’ as crucial to maintaining our credit rating.
That’s Joe Hockey — whose idea of bipartisanship in opposition was to call Labor’s attempts to wind back middle class welfare “the politics of envy” and “class warfare”. If that’s your idea of bipartisanship Joe, you might want to buy a dictionary.
But back to S&P and its new 30% limit. Did the agency undertake any consultation with key policymakers? One senior figure derided the limit, pointing out that on that basis most countries wouldn’t get a AAA rating. If we applied the S&P limit, Canada and Germany shouldn’t currently have their triple-A rating — their net government debt is above 30% (33.1% for Canada in late 2013 and just over 55% for Germany at the end of last year). Switzerland would be on the cusp of a downgrade with a net debt to GDP ratio of 27.8%. The UK’s ratio is 86%, while the US has a ratio of 89% (see figures here).
What’s Australia’s current debt level? Um… 19.8% for federal and state debt, forecast to rise to 21.4% in 2015 and then falling to 20.6% in 2017. That might be why, despite the 30% limit, S&P admits “Australia’s public finances remain strong — with low debt, deficits and debt-servicing costs — although they have weakened as a result of the global recession.”
But here’s a thought — with the Reserve Bank, exporters of all sizes, the government, Treasury and tourism operators anxious about the continuing high value of the Aussie dollar, S&P has given us an easy way to get the dollar down — just commit to adding another $200 billion of debt in the next six years (we don’t have to actually spend it, just forecast it) and get the rating down to AA or less. Call S&P’s bluff, stampede it into changing the rating, and get the dollar down by 10 to 15% very quickly. Then, sit back and watch export income surge and pump up the federal budget. Sure, we’d have to lift interest rates (to crunch domestic inflation), but they’re currently at record low levels anyway.
Method behind the madness of this parliament? Surely not. Dumb luck and golden opportunities blithely squandered more like.
So why is Standard and Poor’s making such a silly call? Doing a favour for a client?
This from the people who brought us the GFC!
Well this is one the outfits that rated the junk loans as high grade just pre GFC. Why does anyone believe anything they say?
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