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Announcement:

Moody's maintains Australia's Aaa rating despite higher fiscal deficits; outlook stable

15 Dec 2014

Singapore, December 15, 2014 -- Moody's Investors Service says that its outlook on Australia's Aaa sovereign rating remains stable, despite the higher budget deficits announced in the government's mid-year economic and fiscal outlook (MYEFO) on 15 December.

The MYEFO forecasts that the Commonwealth government's FY 2014/15 fiscal deficit will be 2.5% of GDP, higher than 1.8% of GDP (excluding net future fund earnings) estimated in the FY 2014/15 budget announcement in May.

In addition, deficits for the next four years will be higher than were estimated in the May budget announcement. According to the MYEFO, the budget will not return to balance in FY 2018/19 as was expected in May, and while it will return to surpluses between FY 2019/20 and FY 2024/25, these surpluses will be lower than was forecast previously.

Consequently, whereas the May budget had anticipated that net debt would peak at 14.6% of GDP in FY 2016/17 before falling to 0.7% of GDP in FY 2024/25, the MYEFO expects net debt to peak at 17.2% of GDP in FY 2016/17 and to decline to 4.7% of GDP by FY 2024/25.

Moody's notes that an upward revision in budget deficit estimates was expected given recent economic and policy developments. The MYEFO points to the fall in iron ore prices, weaker than anticipated wage growth, as well as delays in the passage of certain legislative measures and outcomes of negotiations with the Senate as key reasons for the revised fiscal outlook.

In Moody's view, although the forecast fiscal deficits are higher and future surpluses lower than announced in May, the trend of declining fiscal deficits and the plan to return to budget surpluses remains intact, and will support Australia's credit profile.

Moreover, according to Moody's analysis, despite the higher than expected deficits, Australia's forecast fiscal ratios are consistent with its Aaa rating.

Australia's consolidated gross general government debt, which includes state and local government debt, is about 32% of GDP, whereas the median for Aaa rated countries is around 45% of GDP.

The rating agency points out that despite the expected increase in government debt, Australia's general government debt to GDP ratio is likely to remain below the median for Aaa-rated sovereigns.

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.

Atsi Sheth
Senior Vice President
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
SUBSCRIBERS: (852) 3551-3077

Alastair Wilson
MD-Global Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's maintains Australia's Aaa rating despite higher fiscal deficits; outlook stable
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