Credit ratings agency Moody’s sees an increasing debt burden building for Australian state governments over the coming years, although it says they will be able to manage it without seeing their creditworthiness slip.
Moody’s says in a note today that with the states facing slowing revenue growth and rising cost pressures, they’ll need to maintain spending discipline.
The note also contains this excellent chart which helps compare the importance of different revenue streams for the various state governments.
You can see how the booming property markets have supported revenues in the eastern states. It also shows why GST distributions are such a hot political issue for Western Australia.
(The “other grants” from the Commonwealth are the specific purpose grants, which are mainly directed at health and education spending. States are able to spend GST however they like.)
Put simply, states with more diverse sources of revenue are better positioned to deal with budget challenges.
Moody’s says: “States with lower revenue diversification are more reliant on transfers from the Commonwealth, and will be more adversely impacted by a smaller GST pool, lower than expected population growth and changes to the fiscal capabilities of the other states. These factors are largely beyond the control of states where revenue raising abilities are constrained, and underscores their high dependence on the Commonwealth when compared to peers.”