Fitch: Liberal Win Doesn't Alter Australia's Fiscal Trajectory

Sun Sep 8, 2013 11:49pm EDT

HONG KONG, September 08 (Fitch) The Liberal-National Coalition victory in Australia's general election over the weekend is unlikely to shift the government's near-term fiscal position or its medium-term trajectory, says Fitch Ratings. Therefore, the election result is neutral for the sovereign's credit profile (as reflected in the AAA/Stable rating which was last affirmed in April). We expect the new Coalition government will remain on track to reaching a modest budget surplus by 2017, broadly in line with the roadmap set by the outgoing Labour government. This reflects the absence of deep ideological divides between the two main parties on core aspects of fiscal management, notwithstanding political differences on a few taxation policies (such as mining and carbon taxes). Fiscal policy over the past decade has restrained the level of government debt - which at 32% of GDP is lower than at most of its rated peers. The relatively strong cross-party consensus on overall fiscal prudence is a key factor underpinning Australia's strong sovereign credit profile. Overall fiscal discipline is enshrined in the Charter of Budget Honesty Act, enacted in 1998. This has forged a durable social consensus on maintaining a balanced budget through the economic cycle. Australia's main medium-term credit challenge is adapting to weakening of the terms-of-trade, and a topping-out of investment activity in the mining sector. This has already begun slowing economic activity. Ongoing monetary easing and exchange-rate flexibility will support the economy. However, sustaining medium-term GDP growth at its potential rate (widely regarded to be around 3% year-on-year) in the next few years could prove more challenging. Supply-side measures which shore up non-mining activity in a sustainable way will be the key to sustaining medium-term GDP growth. Whether these other sources of growth can respond to supply-side adjustments, and to what extent they will allow the economy to steer clear of external and internal imbalances, will be important for the credit profile. These will determine the extent of medium-term vulnerabilities and, ultimately, potential pressures on public finances. The upshot is that any post-election shift in fiscal policy should be minor, and unlikely to alter the overall stance of fiscal policy or the trajectory of government finances. But a post-election economic strategy that facilitates higher productivity and broadens Australia's sources of (sustainable) growth is assuming increasing sovereign credit significance. Please also see "Australia Statement Broadly Consistent with Consolidation", published 2 August 2013 and available on www.fitchratings.com Contacts: Art Woo Sovereign Fitch (Hong Kong) Limited 28th Floor, Tower Two, Lippo Centre 89 Queensway, Hong Kong. Tel: +852 2263 9925 Andrew Colquhoun Senior Director Sovereign Tel: +852 2263 9938 Aninda Mitra Senior Director Fitch Wire Tel: +65 6796 7232 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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