S&P warns Australian budget deficits increase economic vulnerability
- High government spending and persistent budget deficits leave Australia vulnerable to potential economic shocks, according to credit rating agency S&P Global.
- State government debt interest payments are forecast to reach $40 billion annually by 2029, while stamp duty revenues would fall by $8 billion to $10 billion in this financial year.
- S&P Global highlighted that high fiscal spending complicates the Reserve Bank of Australia’s efforts to lower inflation through interest rate adjustments.
S&P Global (NYSE:SPGI) reported that record federal spending and persistent budget deficits have left Australia vulnerable to economic downturns, such as a drop in mining commodity revenues.
The rating agency noted that high federal spending outside the pandemic is making it harder for the Reserve Bank of Australia to lower inflation.
"So right now we have a situation where the RBA and the government are, in some cases, pulling in opposite directions," said S&P Global Sovereign Rating Analyst Martin Foo.
The report noted that combined state government debt is forecast to reach $800 billion this financial year, up from $300 billion prior to the 2020 pandemic.
The warning highlights growing fiscal pressures as official forecasts project structural deficits over the long term.
Following the announcement, the S&P Global share price was unchanged at $395.18.
The Australian federal budget previously collected a cumulative windfall of over $400 billion compared to 2022 Treasury forecasts, driven by strong mining export taxes and higher income tax revenue.
However, state stamp duty revenues are projected to fall as the housing market slows, with investment bank UBS estimating total stamp duty revenue losses could reach $30 billion over the next four years.
