Thursday, January 17, 2013

What about the sovereign risk? Er....

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Months after the mining tax, the carbon tax and Labor’s fourth successive budget deficit Australia has been rewarded with an upgrade by the world’s biggest fund manager.

Blackrock is one of the world’s most important buyers of governments bonds, investing $US3.7 trillion worldwide. It says Australia’s carbon tax and the mining tax have had at most a “marginal” impact on perceptions of country risk. More important has been the government’s success in shrinking its budget deficit.

Its new sovereign risk update ranks Australian government bonds as the world’s seventh least risky, up from the tenth least risky three months ago. No other nation has jumped three places in the latest survey.

The finding is at odds with a claim by the Coalition's Treasury spokesman Joe Hockey in August that Labor was “adversely impacting Australia’s sovereign risk profile”.

BlackRock’s Australian head of fixed income Steve Miller said Australia’s position was “exceedingly strong” and strengthening.

“The plain fact is, compared to the rest of the world - and this is what we are doing - Australia's public debt position is very, very strong. Whether you are looking at budget balance or public debt to gross domestic product, whichever way we look at it Australia comes out exceedingly strong.”

The new Blackrock survey rates the governments of Norway, Singapore, Switzerland, Sweden, Finland, Canada, Australia, Taiwan, Germany and Chile as the ten safest to lend to.

The United States is in the next ten along with New Zealand and China, which have each moved up two places.

At the bottom in positions 40 to 48 are Spain, Argentina, Ireland, Italy, Venezuela, Egypt, Portugal and Greece. Japan and South Africa have each slid two places to 35 and 36.

“All other things being equal this and the things that brought it about will put further downward pressure on bond yields,” said Mr Miller referring to interest rate Australia needs to pay to borrow money. Mr Miller said it would also make it easier for Australian state governments to borrow money...

The Blackrock calculation accords with those of the world’s top three credit ratings agencies which have given Australia their highest AAA rating. But it is a more recent calculation and the improvement reflects recent developments.

“The impact of the mining tax and the carbon tax would be marginal,” said Mr Miller. “We look at ability to pay and willingness to pay. Australia’s budget position has improved. It has never defaulted. It has low debt by international standards.”

The Blackrock calculations were finalised before Treasurer Wayne Swan disowned his promise of budget surplus on December 20. Mr Miller said the new position made little difference.

“I don't think bond markets would be that rankled by the difference between a surplus of 0.1 pc of GDP or a deficit of 0.1 per cent,” he said. “I don't it would have a material impact on Australia's ranking.”

Acting Treasurer Penny Wong welcomed the report as an “endorsement of Australia’s strong public finances in the face of global headwinds”.

A spokesperson of Mr Hockey said the reality remained that business leaders had “expressed serious concern about the chopping and changing of government policy, the uncertainty of the taxation environment and the toxic relationship Canberra has with many members of the business community”.

“Unquestionably, eight changes to the carbon tax, five versions of the mining tax, unexpected changes to business taxation, and the four largest deficits in Australia’s history impacts on Australia’s attractiveness as an investment destination,” the spokesman said.

In today's Sydney Morning Herald and Age

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