Reuters: US Dollar Report: RPT-Fitch: Australia sticks to fiscal consolidation, delays possible

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RPT-Fitch: Australia sticks to fiscal consolidation, delays possible May 14th 2013, 13:18 Tue May 14, 2013 9:18am EDT (Repeat for additional subscribers) May 14 (Reuters) - (The following statement was released by the rating agency) Australia's 2013-2014 Commonwealth Budget is consistent with the Australian authorities' commitment to fiscal consolidation, Fitch Ratings says. It restates the commitment to balancing the budget, in line with our view that fiscal consolidation has slowed but has not reversed course. However, risks to the government's economic projections, particularly a sharper-than-expected decline in commodity prices, could further delay the process. Tuesday's budget aims to continue the recent process of deficit reduction, projecting a fall to AUD18bn, or 1.1% of GDP, in FY14. There are further falls in the following two years until the budget is balanced in FY16 - three years later than previously planned. With federal elections due on 14 September, a shift towards aggressive spending cuts and tax increases was not anticipated. Announced measures included cuts to family benefits worth over AUD10bn over 10 years, an increase to the Medicare levy from next year, higher customs duties and changes to business tax concessions. When we affirmed Australia's 'AAA' sovereign rating and Stable Outlook in March, one of the key assumptions was that the Australian authorities remained committed to sound fiscal management (as highlighted in the Charter of Budget Honest Act). The budget leaves this assumption intact. Australia's low sovereign debt ratios means the sovereign has begun its fiscal consolidation from a position of strength and has headroom to reduce its deficit more slowly than many other advanced economies. (We had expected gross general government debt to peak at about 33% of GDP this year.) The budget does not have any implications for the rating. The failure to return the budget to surplus in the current fiscal year (ending June 2013) as planned is not a surprise. Treasurer Wayne Swan had said late last year that a surplus was unlikely. We already considered this challenging given the risks to the government's economic forecasts and the scale of adjustment needed in a short space of time. The combined impact of a strong Australian dollar, lower commodity prices, and slowing economic growth on government revenues means the government now forecasts a FY13 deficit of 1.3% of GDP, close to our own forecast of 1.5% of GDP. The economic projections in the 2013-14 Budget assume a modest decline in commodity prices or terms of trade. Downside risks apply to these projections. Looking beyond September's elections, measures to increase revenues and cut expenditure that accelerate fiscal consolidation over the medium term would provide further support to the rating. Link this Share this Digg this Email Reprints

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