10 September 2023

ACT's credit rating downgraded due to 'slower fiscal recovery' from pandemic

| Lizzie Waymouth
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Andrew Barr and Yvette Berry

S&P Global expects the ACT to record an operating budget deficit in 2024 due to a sharp rise in government spending. Photo: Ian Bushnell.

A global credit rating agency has downgraded the ACT’s rating for the first time in over 20 years, anticipating a slower fiscal recovery from the COVID-19 pandemic and higher spending.

S&P Global also expects the ACT’s operating budget to return to deficit in fiscal year 2024 due to the rollout of cost of living support and the rising cost of delivering services.

The agency lowered its long-term issuer credit rating on the ACT from the highest rating, AAA, to AA+. This is the first time its rating has changed since February 2003.

S&P Global forecasts that the ACT’s ratio of debt to operating revenue will reach 154 per cent by 2026, far higher than its international peers with a AAA rating.

“After-capital account deficits will also be larger and more prolonged than our previous forecasts, reflecting weaker operating balances and ACT’s greater capital expenditure (capex) than we expected,” S&P Global said in a statement.

“The downgrade reflects the territory’s slower fiscal recovery from the pandemic than we expected. ACT’s after-capital account balance is larger, and its ratio of tax-supported debt to operating revenues is much higher than those for all AAA-rated peers globally.”

Other jurisdictions have also had their ratings downgraded in recent years. Both NSW and Victoria lost their AAA ratings in 2020.

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While S&P Global expects the ACT’s budgetary outcomes to steadily improve over the next three years, this will be at a slower pace than previously forecast.

It expects the ACT’s cash operating balance to revert to deficit in fiscal year 2024 as rising expenses and major infrastructure spending delay recovery.

“The territory’s 2023-2024 Budget focuses on the wellbeing of residents by improving the public healthcare system, investing in social and affordable housing, and improving educational outcomes,” it said.

The ACT budget allocated an additional $540 million to healthcare, $400 million to education and $345 million to housing over 2024-2027.

“We expect the sharp rise in spending to lead to a 2.4 per cent operating deficit in fiscal 2024, compared with our prior forecasts of a 2.8 per cent surplus,” S&P Global said.

However, it expects operating expenses to moderate from 2025 onwards as spending on cost-of-living support and one-off cash items decreases.

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However, S&P Global said the ACT’s economic fundamentals remain robust despite slowing growth.

“ACT’s economic fundamentals remain very strong, underpinned by high gross state product (GSP) per capita, household consumption and public demand. The territory has a very high-income economy, given it is the home of the Commonwealth government and the Australian public service,” it said.

S&P Global also cited strong population growth as a supporting factor, particularly with the return of international students and a pickup in interstate migration.

The ACT also benefits from a low unemployment rate, averaging around 3 per cent.

“The territory historically has had Australia’s most resilient labour market, with unemployment tracking 1-2 percentage points lower than the national average in the past half-decade,” S&P Global said.

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This is a real tragedy and indicative of poor planing and a changing world. The destination that the ACT Government has been heading for may be a mirage and it’s time to recognise this. Debt can be good when it provides infrastructure for a future which exists. Investing in stables after the arrival of the motorcar was folly.
The world is undergoing a transformational change so the cash-cow that is the Federal Government may not be around in the future.
While significant sums have been invested in a train services and trying to get Canberrians to accept high density housing the needle is now pushing in the other direction.
People are now working from home with ubiquitous Internet access. Those who were one daily commuters are now occasional commuters. The numbers of people using public transport is falling across all states leaving this infrastructure as stranded assets, trains services especially lack the flexibility to transition in a changed world.
Working from home will create demand for exaburbs, beyond the suburbs as the reduction in a requirement to commute and the need for additional space for a home office and lifestyle choices push people away from higher density living.
High density urban areas will again become slums as they have in the past when the ability to commute was enhanced.
ACT Government needs to ensure that debt builds the infrastructure that people want. Ensure that this happens in a low carbon manner however trying to treat people like cattle in a soviet state is a losing recipe.

The budget was broken before C19. Money allocated wasn’t spent on basic infrastructure and hospitals and other projects delays. Pandemic eases and government went on a spending spree to catch up so all the expenses hidden behind a budget year with an asterix next to it, so they could blame covid.

Backdoor deals and union agreements are only good for unions and union developers.

Across the board we get less services transport, health, education representation all cut and axed. We pay the most tax if any part of Australia and we have no say in things that matter to us.

You can make any budget look good you just shift expenses into the out years and income into the current. Write off the debt where you can and for a while it looks like ur doing a great job. Eventually the wheels fall off. Hopefully youve sold the business when this happens. Eg dick smith and the private equity scam.

We have no money, how much is going to be water on the not to get up voice that no body wants?

What… you mean spending like a drunken sailor on uncosted, garbage projects with no cost/benefit analysis and purely based on ideology has consequences? Can’t we just tax people more?

From FOI requests, the ACT government didn’t even consider economic consequences of lockdowns. That makes them criminal.

So much for Barr’s prediction last year that the ACT Budget: would grow its way out of the red. The growth model by supporting housing and construction- developers and increased consumption as a simple economic formula will in fact increase debt (deficit)and is clearly reducing services and impacting existing amenities. How about creating industry growth and proper jobs outside of construction, services and consumption.

HiddenDragon9:01 pm 11 Sep 23

Fifteen years ago, the international credit rating agencies were bitten on the backside by the Global Financial Crisis – a bleedingly inevitable disaster which had been long in the making (as films including The Big Short and Margin Call entertainingly illustrated).

If those agencies truly think that Australian government budgets, including the ACT’s, are basically sound and sustainable and just in need of a little bit of tinkering to get them back to AAA, they have obviously learnt nothing from the GFC.

ACT Government deserves praise for its economic performance so far while being looked aside for 9 years during feeeral LNP and not getting the representation ACT deserves based on its population.

It’s been widely reported that ACT has been getting the short end of the stick during LNP’s stint in power, getting smaller share of fiscal pie compared to the rest of the state/territories with similar or event lower population.

You should be a comedian

John Koundouzis5:36 pm 11 Sep 23

That’s hilarious if you really believe that. Economic performance?? We will be in debt for years to ay off this government’s follies

The regime has broken the budget. When Labor and Greens first hopped into bed, their prenuptial agreement included this clause, “The parties confirm their commitment to fiscal responsibility and the maintenance of a balanced budget through the economic cycle.” According to Stanhope’s recent analysis –

The 2023-24 ACT Budget forecasts net debt will grow to $10.6 billion by 2026-27, more than double the $4.8 billion of 2021-22, which will be an average increase of $1.173 billion every year, or $3.2 million every day. Over this period annual interest payments will have increased from $250 million to $595 million.

Remember, rainbow roundabouts are essential

John Koundouzis10:52 am 12 Sep 23

Don’t forget the buses and tram

Add to this the push for contractors to APS, reduces payroll tax, and with more APS roles going to other states results in lower payroll tax receipts for ACT; has the ACT gov factored this into its forecast?

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