JP Morgan: Australia's AAA rating is at risk because 'fiscal policy now tangled in partisan politics'

Image: Ian Walton/Getty Images.

Australia is one of just nine countries with the platinum standard AAA credit rating from all three credit ratings agencies.

But JP Morgan Australia Economist Stephen Walters believes this rating could eventually come under threat because of the partisan nature of Federal politics and the ballooning Government debt.

Walters says that as Treasurer Hockey prepares his 2015-16 budget he is faced with the “the same difficulties as last year, not least of which is an uncooperative Senate.”

That’s a problem for a Treasurer committed to budget repair given that, “tax revenues continue to undershoot expectations, and expenditure growth has accelerated, not slowed, as the government promised,” Walters said.

As a result, Walters says gross Commonwealth debt has grown from 5% in 2007 to 22% of GDP. That’s not a problem even for a nation heavily dependent on foreigners and foreign capital to fund the economy. But even though Walters says, “foreign investors still have a healthy appetite to fund the deficit,” he also notes that “we believe fiscal policy is on the wrong track, with Treasury projections now heralding a departure from Australia’s legacy of fiscal rectitude.”

That’s a problem because it means “the budget is in chronic deficit, and public debt is ballooning, seemingly unchecked.”

Walters told Business Insider: “You never know, some of the senators may have an epiphany and decide to vote in favour of some of these things [the existing savings measures] in the budget that haven’t been passed. But, he added, “we’re skeptical.”

That seems unlikely given Commonwealth debt levels continue tracking higher.

Walters says this means that while the “loss of Australia’s coveted triple-AAA sovereign rating is not imminent, in our view, risks will grow without a change in trajectory.”

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