S&P Global Ratings has issued a stark warning that Australia’s esteemed AAA sovereign credit rating could be jeopardized if election campaign promises lead to increased structural deficits, escalating debt levels, and rising interest expenses.
This cautionary note highlights the significant fiscal pressures that the incoming government will face, particularly as major political parties have made substantial spending commitments ahead of the election.
Australia’s major parties have announced billions of dollars in spending pledges, including funds for new homes for first-time buyers, tax cuts, and enhanced healthcare expenditures.
Additionally, S&P has pointed to over A$100 billion in anticipated “off-budget” spending between fiscal years 2025 and 2029, which amplifies its fiscal concerns. This level of spending is unprecedented, with public outlays reaching post-war highs amidst intensifying global trade tensions and slowing economic growth.
The budget is projected to revert to a deficit by June 2025, following two consecutive surpluses. State governments are also engaging in substantial spending, which could widen the general government fiscal deficit to 2%-2.5% of GDP-a level rarely seen since the global financial crisis, excluding pandemic-affected years.
If major election commitments are not funded through additional revenues or savings, the deficit could expand further, potentially threatening Australia’s AAA rating.
Australia is one of the few countries worldwide to hold a AAA rating from all three major credit rating agencies: S&P, Fitch Ratings, and Moody’s Investors Service. This rating is underpinned by robust fiscal management across multiple governments over several decades.
However, the current fiscal landscape, coupled with election spending promises, poses a significant challenge to maintaining this prestigious rating.
In response to these concerns, the Labor Party has announced plans to save $6.4 billion over four years by reducing reliance on consultants and cracking down on expenses, while also raising additional revenue through increased student visa fees.
Meanwhile, the opposition has proposed reducing the public service by 41,000 positions to save $10 billion. These measures reflect efforts to address fiscal pressures, but the outcome will depend on how effectively the next government manages its spending commitments and broader economic policies.