The last of the three major credit rating agencies, Fitch Ratings, has issued its statement on the federal election outcome, warning policy uncertainty has now increased in Canberra.
It has kept Australia’s credit rating at AAA, but warns it will monitor the Coalition’s long-term fiscal consolidation strategy.
It also says it is “notable” the economy is facing heightened risks.
Standard & Poor’s warned last week that it will monitor the “success or otherwise” of the Turnbull government’s ability to pass revenue and expenditure measures through the new parliament over the next 12 months.
The prime minister, Malcolm Turnbull, said on Wednesday that, after receiving the incoming government brief from Treasury this week, he had no reason to doubt the revenue projections in the Coalition’s budget.
But he left room for another potential revenue downgrade, saying Australia’s economy was facing a volatile environment.
“Plainly there are a lot of factors in the global environment which impinge upon Australia’s economic performance, and indeed revenues of government, both for good or ill,” he said.
The shadow treasurer, Chris Bowen, made sovereign credit ratings a key election issue during the campaign, repeatedly warning that the Coalition’s budget plans would put Australia’s AAA-rating at risk.
The treasurer, Scott Morrison, countered that the Coalition’s $48bn corporate tax cut would encourage investment and spur long-term economic growth, and therefore keep the AAA-rating in place.
But critics say neither major party should take ratings agencies seriously any more because they lost their credibility during the global financial crisis.
An economist, John Quiggin, argued this week that the central importance placed on the AAA rating by Australia’s political class had also “seriously distorted our economic policy debate”.
“In the lead-up to the GFC, AAA ratings were tossed around like confetti, being awarded to derivative securities that were ultimately based on home mortgages that could not possibly be repaid when prices inevitably fell,” he wrote.
“Hundreds of these allegedly gold-plated securities went into default. Only when disaster was already obvious did the agencies fix their ratings.
“The announcement by Standard & Poor’s that Australia’s AAA credit rating was to be placed on a negative outlook was widely greeted as a harbinger of doom. In reality, however, the loss of the AAA rating would have almost no effect on our economy.”
The warning from Fitch Ratings will nevertheless contribute to the political debate in Canberra as the Coalition and Labor readjust their economic arguments post-election.
The Reserve Bank’s meeting in August is already being factored in, because economists are predicting that the official interest rate could once again be cut, this time to a historically low 1.5%.
On Wednesday, the latest Westpac-Melbourne Institute survey of consumer confidence – conducted between 4 and 7 July – found consumer sentiment deteriorated this month, with the number of pessimists now outweighing optimists.
Westpac’s chief economist, Bill Evans, said Brexit and the prospect of a hung parliament in Australia had weighed on the results.
