Moody's says the close election result is credit negative for Australia

Derryn Hinch, a new independent Senator. Scott Barbour/Getty Images

The Coalition’s narrow election win and the likelihood of a more splintered Senate is credit negative for Australia, according to ratings agency Moody’s.

“It will challenge the government’s ability to implement measures aimed at curbing the budget deficit,” says Moody’s.

Last week Standard and Poor’s placed Australia’s AAA rating on credit watch negative from its previously stable outlook.

On Wednesday, Fitch Ratings said the slim margin election victory for the Coalition will make policy decisions and reducing debt more of a challenge than the previous parliament.

The Coalition is projected to lose 14 seats but will form government with 76 of 150 seats.

The government has several measures to reduce the budget deficit, including restricting tax advantages on superannuation and restraining health, education and welfare spending.

“Successive Australian governments have reasserted their commitment to reducing the budget deficit, and we expect that the new government, when formed, will pledge similar objectives,” says Moody’s.

However, previous attempts to get cost cutting measures through the Senate have failed.

“The Coalition’s now-narrower majority threatens to add to these challenges,” Moody’s says.

According to Moody’s, moderate GDP growth as a result of lower corporate profits, following a fall in commodity prices, and muted wage growth will weigh on government revenues.

At the same time, spending commitments on large budget items including health, education and social services limit the scope for cuts in overall expenditures.

“Without proactive measures to raise revenues or cut spending, Australia’s budget deficits will not narrow significantly and government debt will continue to rise,” Moody’s says.

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