Despite the lack of focus on it in the election campaign, Australia’s credit rating is now the most important policy issue facing whoever leads the country after Saturday.

The election result will be occupying the minds of many of Australia’s nonpolitical policymakers – not merely the winner, but what the new Senate looks like as a consequence of Malcolm Turnbull’s wholly unnecessary double dissolution gamble. It will also be occupying the minds of ratings agencies.

The three major agencies, Standard & Poor’s, Fitch, and Moody’s are expected to make statements on the country’s outlook given the result, but as Crikey reported yesterday, the words from Standard & Poor’s will be the most watched because it has said nothing since the federal budget on May 3, even though Moody’s and Fitch gave the budget a cautious tick.

The main issue isn’t so much the level of debt suggested by the winner’s policies but whether their policies (especially on revenue enhancement and spending controls) and their capacity to implement them will be seen as sufficient to retain Australia’s triple A rating. There’s little difference between the parties on net debt — it’s headed to around 19.2% of GDP under the Coalition’s revised policies announced yesterday, while it will be just over 19.2% under Labor’s polices. But agencies will have to assess how much political will there is to stick these forecasts, and not just on the part of whoever governs, but whoever controls the Senate.

Until recently, the loss of our triple A rating was unlikely to have presented major problems for us. But Brexit and growing global market volatility now mean its potential consequences are more serious.

[Yes, you should panic about Brexit]

Any downgrade, even to a negative outlook, will generate unease and trigger some selling of $A assets. That wave of selling, especially in government bonds (federal and state) will sweep across our markets and put pressure on the economy — there are many holders who can only hold triple A-rated securities (such as foreign central banks, of which more than 20 hold Australian government bonds).

After Britain lost its last triple A rating from S&P this week (the two-notch cut was the first ever reduction of this size to a triple A-rated economy), Australia is now just one of a handful of countries in the top-rated group: economies with a triple A rating and a stable outlook. Others are Germany, Sweden, Denmark, Singapore, Lichtenstein, Luxembourg, Canada and Sweden. Hong Kong and Norway are triple A-rated, but have one or more negative outlooks from agencies.

A downgrade or lowering of outlook to negative will have a slow but noticeable impact on a range of institutions and companies: state governments, the banks, Telstra and other debt issuers will all have their ratings or outlooks lowered (and their implied cost of finance will edge up). That again will add to the selling on the local markets.

S&P is the agency being most closely watched because it has said nothing about Australia’s economy and rating since well before the budget. Its views on the budget are unknown and has apparently been waiting to see the election result and outcome in the Senate before issuing a view. What is also important to remember is that of the three agencies, S&P is the one that looks more closely at domestic politics and its interaction with economic policy and issues such as revenue and spending controls.

The National Australia Bank’s head of global research Peter Jolly issued a note in May, a week after the budget, where he pointed to the absence of comment from S&P, pointing out that its silence may reflect S&P’s concerns about the level of debt the Australian government is forecasting for itself over the horizon.

“The Government now expects net debt to peak at a higher 19.2% of GDP in 2017-18 and then decline modestly in the out-years. The prior mid-year fiscal update, from December, saw net debt peaking at 18.5% of GDP in 2017-18” he said. My credit research colleagues, Michael Bush and Andrew Jones, have gone back and looked at how S&P has reacted to the past 14 Budgets. On all but 2 occasions, S&P came out within 24 hours of the Budget and affirmed the AAA credit rating. Once was in May 2008, amidst the Global Financial Crisis. The other occasion was last week.”

Jolly said NAB’s judgement was that S&P was likely to either affirm the triple A rating or put the triple A rating on a negative outlook.

In cutting the UK’s rating this week, S&P said:

“.. in our opinion, this outcome (the Brexit vote) is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.”

The ratings agency said its downgrade notes the risk of a “marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements.”

[Brexit — the shockwaves spread out from a departing Britain]

S&P may reach a similar conclusion about our own institutions, especially if the Senate is a mess after the poll — and responsibility for that will rest entirely with the Prime Minister, who has made it twice as easy for minor party and independent candidates to make it into the Senate. Any result that suggests political “brinkmanship”, or difficulty in passing legislation on revenue and spending, will likely lead S&P to reach for its downgrade lever, and if that happens, watch the sell-off.

On the upside, Brexit pressures eased in financial markets overnight, though analysts questioned whether it was a “dead kitten” or full grown “dead cat bounce”, meaning there’s every chance of more pain to come for global markets and investors.

There’s no sign of a new prime minister; Labour is in chaos with Opposition Leader Jeremy Corbyn (not exactly a figure to calm markets) losing a confidence vote in the parliamentary party, while Rupert Murdoch has anointed Michael Gove, not Boris Johnson, as News Corp’s candidate to replace David Cameron. For investors in the world’s fifth-largest economy, the “institutional assessment” at the moment is of complete paralysis.