One of two main international credit ratings agencies has downgraded its view of Victoria’s credit-worthiness, saying the state’s ‘substantial and prolonged lockdown’ had left it in more fiscal trouble than the rest of Australia.
Ratings agency Standard & Poor’s downgraded Victoria from AAA rating to AA, taking the state’s rating down two notches.
NSW was also downgraded by one level from AAA to AA+ on Monday, with the two states the first Australian jurisdictions to be downgraded since the economic shock of the pandemic hit.
In the wake of the state government’s big spending budget last month, fuelled by a borrowing program that is set to take net debt to nearly $155 billion in the next four years, S&P, and the other big ratings agency Moodys, flagged that they would be reviewing their advice to investors on Victoria.
In its briefing note issued on Monday, S&P said it believed the state was going to run big deficits for years to come and it had largely run out of assets to sell to help prop up its budget position.
“Victoria’s economy has been affected more significantly than other Australian states and territories, mainly because fallout from the second wave of infections resulted in a substantial and prolonged lockdown,” S&P wrote.
State Treasurer Tim Pallas at the Victorian budget presentation last month.Credit:Joe Armao
“In our view, the Victorian government’s path to fiscal repair will be more challenging and prolonged than other states because of the significant increase in debt stock projected over the next few years.”
Credit ratings are important to governments because they determine the rates at which treasuries can borrow money on the international bond markets, with a strong rating allowing cheaper debt.
Victoria’s interest bill had been predicted, before Monday’s downgrade, to reach about $4 billion annually by the 2023-2024 financial year but it was unclear on Monday if the S&P move would result in higher borrowing costs, with many economists arguing that with the present record-low interest rates, the influence of the ratings agencies was much diminished.
But there was an immediate political effect, with Opposition Leader Michael O’Brien and his treasury spokeswoman Louise Staley calling a snap press conference to declare Monday a “sad day for Victorians”.
“It sends a message that this government simply cannot manage money,” Mr O’Brien said.
“What we’ve seen with this Labor government is debt, deficit and now a double downgrade.
“This is going to cost every single Victorian family; it means higher taxes and charges and less into schools and hospitals.”
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Noel Towell is State Political Editor for The Age
https://news.google.com/__i/rss/rd/articles/CBMiZGh0dHBzOi8vd3d3LnRoZWFnZS5jb20uYXUvbmF0aW9uYWwvdmljdG9yaWEvdmljdG9yaWEtcy1jcmVkaXQtcmF0aW5nLWRvd25ncmFkZWQtMjAyMDEyMDctcDU2bGFuLmh0bWzSAWRodHRwczovL2FtcC50aGVhZ2UuY29tLmF1L25hdGlvbmFsL3ZpY3RvcmlhL3ZpY3RvcmlhLXMtY3JlZGl0LXJhdGluZy1kb3duZ3JhZGVkLTIwMjAxMjA3LXA1Nmxhbi5odG1s?oc=5
2020-12-07 03:46:00Z
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