May 9, 2018 / 5:07 AM / 2 months ago

Australia's budget relies on 'optimistic' revenue views, says Fitch

SYDNEY (Reuters) - Australia’s new budget relies on optimistic revenue assumptions, rating agency Fitch said on Wednesday, creating some “downside risk” for the government’s target to produce a surplus one year earlier than anticipated.

FILE PHOTO: A construction worker smokes a cigarette as he looks at his mobile phone on a worksite in Sydney, Australia, June 30, 2017. REUTERS/Steven Saphore/File Photo

Prime Minister Malcolm Turnbull’s center-right government unveiled its annual budget on Tuesday, with personal tax cuts and a pledge to deliver a surplus by 2019/20, ending almost a decade of deficits, as its centre-piece item.

The three major rating agencies have affirmed Australia’s s prized triple-A sovereign rating.

Standard & Poor’s Global said the budget showed a commitment to fiscal prudence but there were “significant” risks to the fiscal outlook, including trade tensions and strains in emerging markets.

FILE PHOTO: A worker looks on as a drill breaks the pavement on a construction site next to Barangaroo building complex in Sydney's central business district (CBD) Australia, November 9, 2017. REUTERS/Daniel Munoz/File Photo

Moody’s Investors Service said the 2018/19 is a positive step in improving Australia’s fiscal outlook, provided underlying assumptions hold.

On Wednesday, Fitch said the projected 2019-/20 surplus was no sure thing.

“The reliance on improved revenues, rather than policy proposals, to narrow the deficit poses some downside risk to the achievement of the government’s surplus target,” Jeremy Zook, associate director at Fitch, said in a statement.

Australia’s finances are forecast to hit a surplus of A$2.2 billion ($1.6 billion) in 2019/20, increasing to A$11 billion in 2020/21 and A$16.6 billion in 2021/22.

The forecast surpluses rely on an anticipated windfall from corporate taxes and the fruits of a crackdown on black market economic activity and multinational tax avoidance.

The budget is widely viewed as the unofficial campaign kick-off for the federal election due in the first half of 2019, which means the government can promote its economic credentials on the hustings.

Political analyst David Black said previous governments have had success - and come unstuck - on their surplus promises.

“Politicians sell it as an indicator that the economic situation is under control,” he said.

SHARES MIXED

Shares of companies seen to be affected by budget measures had a mixed response on Wednesday, in a flat overall market .

Fund manager Challenger Ltd (CGF.AX) shares were up 4.5 percent in mid-afternoon, after it said new rules seeking to match retirees with their pension plans would help it sell products.

A Credit Suisse analyst note said shares of companies which sell life insurance may be hit as budget measures requiring some policyholders to “opt in”, rather than be automatically included in plans, may lower demand.

Reporting by Jonathan Barrett and Byron Kaye in SYDNEY

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