Reuters: US Dollar Report: RPT-Fitch: Aussie Debt Ceiling Hike Belies Fiscal Commitment

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RPT-Fitch: Aussie Debt Ceiling Hike Belies Fiscal Commitment Oct 24th 2013, 08:11 Share this Email Print Reprints Thu Oct 24, 2013 4:11am EDT (Repeat for additional subscribers) Oct 24 (Reuters) - (The following statement was released by the rating agency) The hike in Australia's sovereign debt ceiling to AUD500bn is a significant increase in comparison with recent adjustments. But it does not constitute a loosening of fiscal policy or an imminent jump in the debt burden, says Fitch Ratings. Unlike the US, Australia's parliamentary system of government should ensure a smooth passage of the new bill, albeit with vigorous debate. Australia's stated commitment to reaching a balanced budget over the medium term is backed by a long track record of fiscal prudence. Moreover, the recently formed Commission of Audit signals a broad review of expenditure - with the objective of lowering non-essential spending. One reason why we do not believe the hike in the debt ceiling signals an imminent loosening of fiscal policy is because we expect the new Coalition government will remain on track to reaching a modest budget surplus by 2016-2017. This would also be broadly in line with the roadmap set by the outgoing Labour government. The absence of any deep ideological divide between political parties on core aspects of fiscal management is a key factor underpinning Australia's strong sovereign credit profile. Overall fiscal discipline is enshrined in the Charter of Budget Honesty Act, enacted in 1998. This has forged a durable social consensus on maintaining a balanced budget through the economic cycle, assuming no significant external shocks. Moreover, the recent formation of a Commission of Audit to thoroughly review the activity of the Commonwealth government is credit positive. It highlights the new government's efforts to generate cost savings, and improve the overall efficiency and productivity of government services. The current ceiling of AUD300bn on the Federal debt is set to be breached in December, as the timeframe for reaching a budget surplus has been extended. It therefore makes procedural sense to raise the ceiling to accommodate a delayed stabilisation of the debt level. Fitch estimates that Australia's general government debt, which includes both federal and state debt, will rise to around 35% of GDP in 2015, up from 32% in mid-2013. Meanwhile, the Commission of Audit's terms of reference were disclosed earlier this week. The sweeping review of government activity could result in expenditure rationalisation, welfare reduction, privatisation of state assets, and consolidation of government agencies and functions. The upshot of all this is that recent steps undertaken by the new Coalition-led government signals a potential overhaul of the role of the government in consonance with the stated goal of fiscal consolidation. It is unlikely to result in any near-term loosening of policy in a manner which could threaten Australia's (AAA/Stable) sovereign credit profile. Link this Share this Digg this Email Reprints

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