Treasurer downplays risks
Australia’s AAA sovereign credit rating could be at risk if election campaign pledges result in larger structural deficits, debt and interest costs, S&P Global Ratings has warned, with analysts highlighting the fiscal pressures facing the next government ahead of the May 3 national election.
“The budget is already regressing to moderate deficits as public spending hits post-war highs, global trade tensions intensify, and growth slows,” analysts Anthony Walker and Martin Foo wrote in a note. “How the elected government funds its campaign pledges and rising spending will be crucial for maintaining the rating.”
Australia’s major parties have made large spending commitments during a tight campaign, including billions of dollars set aside to build new homes for first-home buyers. S&P pointed to more than $100 billion in “off-budget” spending expected between fiscal 2025 and 2029 to reinforce its concerns.
S&P Global Ratings warned Australia’s prized AAA sovereign credit rating may be at risk if election campaign pledges result in larger structural deficits, debt and interest costs https://t.co/Gq1jTf5PBG
— Bloomberg (@business) April 28, 2025
Despite the warnings, Australian treasurer Jim Chalmers downplayed the risk to the country’s top-level credit rating. At a press conference, he said the $10 billion in commitments made by Prime Minister Anthony Albanese’s centre-left Labor party had been “more than offset” by improvements in the budget.
“If the ratings agencies are worried about spending and if they’re worried about off-budget funds we have demonstrated we have found the room for our election commitments,” Chalmers said. “From time to time, the ratings agencies make their views known. We take their views seriously. We are managing the budget responsibly.”
Costings released by the government revealed that the budget bottom line was $1 billion better over four years. The government outlined plans to fund its promises through $6.4 billion in savings and reprioritisations, including reducing the use of consultants, and aims to raise an additional $760 million by increasing student visa fees.
“The costings that we released today show that we will more than offset our election campaign commitments in every year of the forward estimates,” Chalmers said.
S&P forecast that irrespective of the election outcome, the country’s fiscal balance is projected to return to deficit in the year through June 2025, following two consecutive surpluses. State governments have also been spending heavily, with the general government fiscal deficit possibly widening to 2%-2.5% of GDP — levels rarely seen outside of pandemic years or the immediate aftermath of the global financial crisis.
The Reserve Bank of Australia is closely watching for signs of revived inflation amid rising government spending and global uncertainty. The central bank is expected to cut interest rates by a quarter percentage point to 3.85% at its meeting in May. Money market pricing implies the cash rate could fall below 3% by December.
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