(The following statement was released by the rating agency)
HONG KONG/SINGAPORE, May 15 (Fitch) The 2014-2015 Australian
reinforces the strong public finances and a credible policy
confirming the country is well-positioned relative to other
sovereigns, Fitch Ratings says.
The budget provides significantly greater clarity on the timing
and scale of
planned fiscal consolidation compared with the Mid-Year Economic
Outlook released in December 2013. Consolidation towards a
surplus (from an estimated -3.1% of GDP deficit in FY14) is now
occur by FY19.
According to the plan, the deficit will decline by AUD60bn (0.6%
of GDP per
year) in the next four years, with general government debt
peaking below our
previous estimate of 33% of GDP in FY17. By comparison, 'AAA'
have an average public sector debt burden of 45% of GDP.
government debt is also considerably lower than the 80%-90%
range that is the
upper limit compatible with retaining a 'AAA' rating (provided
the debt burden
is on a downward trajectory and other fundamentals are robust).
As we highlighted in our Australia report in April, the country
faces an ageing
demographic profile and the end of the mining investment boom.
dependence coupled with its relatively high external debt load,
debt tolerance may be lower than for other high-grade
Australia's cyclically adjusted primary deficit is also higher
than its peer
group - -2.7% of GDP in 2013, according to the IMF compared,
with -2.0% for the
advanced G20 countries and +1.0% for the eurozone.
As such, it is positive for Australia's long-term sovereign risk
the planned fiscal consolidation will be driven primarily by
to spending. These include increasing the pension retirement age
to 70 by 2035,
indexing pensions to CPI as opposed to wage growth, increasing
taxes, introducing medical co-payments, and tightening the
unemployment and family tax benefits.
We believe that the budget plan is realistic and achievable. The
forecasts are based on slightly conservative economic
assumptions, with planned
real GDP growth coming in just below consensus expectations.
This means that the
risks of the scheduled deficit reduction falling short of
expectations - owing
to slower-than-expected economic growth - are low. The plan also
spending cuts to be aligned with an improvement in the economic
cycle - most
cuts are scheduled to take place in FY16 and FY17, when the
economic growth to re-accelerate.
There are political risks to the full implementation of the
budget bill, as the
budget requires Senate approval. However, we do not believe that
these pose a
substantive challenge to the core elements of the plan. The
a strong electoral mandate to execute the budget agenda until
the next elections
likely to take place in 2016, having just won its first election
2013 with a large majority in the House of Representatives
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The above article originally appeared as a post on the Fitch
Wire credit market
commentary page. The original article can be accessed at
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