Moody’s says Australia’s budget does not affect rating

Moody's Investors Service said that, despite Australia's budget deficits continuing, the Aaa government bond rating remains secure. The $40 billion deficit projection in the budget released on May 11 for the current fiscal year is less than 3% of GDP and below the levels being recorded in a number of other Aaa-rated countries.
According to Moody's Vice President and Senior Credit Officer Steven Hess, Australia's Commonwealth government debt levels are much lower than the average for advanced economies.
"Although the Commonwealth has gone from being a net creditor into a net debt position, the level of debt remains quite manageable in comparison to many other governments," he said.
"Certainly, Australia's fiscal position is not comparable to the situation in a number of European countries, where market confidence has affected borrowing costs."
Furthermore, according to Moody's, the prospect of Australia eliminating its budget deficit within three years also compares favourably to the outlook for the US and several European countries, where deficits are projected to continue over a much longer time.
"With net debt peaking at only 6.1% of GDP and then declining, Australia is one of the few advanced economies in a position to cut some taxes and initiate some new spending programmes while showing an improving fiscal position," said Moody's Hess.
Underpinning the improving fiscal outlook is a strengthening of GDP growth, based partly on demand for the country's commodity exports. In addition, unemployment is coming down, helping to boost domestic demand.