The Albanese government’s continuing budget deficits caused by record government spending on debt interest, disability and defence have left the nation’s finances vulnerable to a negative shock such as a downturn in mining commodity revenues, credit rating agency S&P Global has warned.
S&P sovereign rating analyst Martin Foo said the highest federal spending in 40 years outside the pandemic was working against the Reserve Bank of Australia’s efforts to tame inflation with interest rate rises.
Aggressive spending by states was also pushing up interest payments on their debt to a record $40 billion and adding to inflation pressures as global bond yields soared, said S&P analysts in a briefing following a new report on Australian governments.
The slump in the housing market from the RBA’s four interest rate rises and Labor’s investor tax changes will also cut state stamp duty revenue by an estimated $8 billion to $10 billion – about 20 per cent – this financial year alone.
Investment bank UBS separately estimates states could lose $30 billion in stamp duty revenue over the next four years.
While the nation’s AAA credit rating is not currently under threat, said Foo, there were two “potential problems” with structural budget deficits and federal spending at its highest outside the pandemic since the 1980s.
“When you think about higher interest payments, higher social security and welfare commitments, higher defence spending – these all look like they’re here to stay, and that could be a problem if revenue windfalls decline,” said Foo.