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Announcement:

Moody's: Australia's FY2019 budget shows government's commitment to fiscal consolidation

16 May 2018

Singapore, May 16, 2018 -- Moody's Investors Service says that Australia's budget for the fiscal year ending June 2019 (FY2019) highlights the Commonwealth government's continued commitment to fiscal consolidation, although some challenges are also apparent.

This commitment is evident in its projection of a small budget surplus by FY2020, a year earlier than the last budget estimated, and the authorities' expectation that the deficit will narrow through a combination of modest expenditure restraint and stronger revenue growth.

Moody's conclusions are contained in its just-released report, "Government of Australia Budget supports fiscal strength, but deficit closure likely to be slower than projected". Australia (Aaa stable) released the budget on 8 May.

Moody's notes that the document contains some significant revisions to last year's outlook and to the December mid-year update, highlighting -- as mentioned -- the authorities' ongoing commitment to fiscal consolidation.

In particular, the government projects a net cash surplus by the end of this decade, a year earlier than previously expected. It also expects an underlying cash balance surplus of 0.1% of GDP in FY2020, expanding to 0.5% of GDP in FY2021, compared with an estimated deficit of 0.8% of GDP for FY2019.

Moody's further believes that the budget underscores Australia's fiscal strength, which is a key support for the sovereign's credit profile, though the closure of the deficit is likely to be slower than the government projects.

Looking ahead, expenditure slippage is also likely to constrain fiscal consolidation, because delivering sustained spending restraint over another four years will likely prove challenging as demands for both current and investment spending persist, particularly in light of forthcoming elections.

In addition, considering establishment of the AUD1.3 billion National Health and Medical Industry Growth Plan and commitment to full funding of the previously announced National Disability Insurance Scheme, expenditure on social welfare will rise by up to 6% in the next few years in real terms, leaving limited room for spending increases in other areas.

Moody's also believes that the rise in revenue as a share of GDP may be more moderate than expected. The government has revised upwards its tax receipt forecasts since its mid-year update, in line with expectations for a strengthening economy and an improved labor market outlook.

Moody's further expects slower revenue growth than the budget assumes. A rise in revenue as a share of GDP has presented a challenge in recent years and this is likely to continue.

Government debt will remain broadly in line with the Aaa median and general government debt will remain around 42% of GDP, after taking into account Moody's forecast for the deficit to persist for longer than the authorities project. At the same time, this viewpoint remains consistent with our "Very High" assessment of fiscal strength.

Australia's high level of debt affordability mitigates the erosion of fiscal strength associated with the upward trend in debt, although interest payments now absorb around 4.3% of revenue, compared with less than 2% in the late 2000s. In an environment of still relatively low interest rates, affordability will likely remain high, but it is vulnerable to a change in financing conditions.

Subscribers can read the full report at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121636

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Martin Petch
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gene Fang
Associate Managing Director
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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