Standard and Poor's continues to warn about a potential ratings downgrade for Australia

File photo. Sergio Dionisio/Getty Images

In July this year ratings agency Standard and Poor’s (S&P) put Australia’s politicians on notice, placing the nation’s AAA long-term sovereign credit rating on negative watch, laying the foundation for a potential downgrade within two years.

It was a proverbial shot across the bows to get the nation’s fiscal house in order, or suffer the financial consequences as a result.

Well, Australia’s politicians may not even have that long.

According to the ABC, citing commentary from S&P, a potential downgrade could arrive within months should attempts to reduce Australia’s budget deficit prove to be unsuccessful.

“As we said in July, we will continue to monitor, over the next six-to-12 months, the success or otherwise of the new Government’s ability to pass revenue and expenditure measures through both houses of Parliament,” said Craig Michaels, S&P’s head of sovereign ratings.

“Whether we maintain our AAA rating or not partly rests on the Government’s willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years.”

That sets up Australia’s mid-year economic and fiscal outlook (MYEFO), scheduled for December 19, as a crucial date that could determine whether a possible downgrade could arrive in the near-term.

That’s now less than a month away.

The renewed warning from S&P followed the release of analysis from Deloitte Access Economics on Monday that said Australia’s budget deficit would likely come in at $40.49 billion for the current financial year, some $3.37 billion larger than the $37.1 billion level forecast in May’s federal budget.

Weak wage and employment growth, the former currently growing at the slowest pace on record, was the main factor cited by the group to explain the expected budget deterioration.

“The largest single component of national income is wages,” says economist Chris Richardson. “And we see the national wage bill as 1% smaller in 2016-17 than the budget factors in.”

You can read more here.

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