Tweedledee. That's who the ratings agencies think is taking over

Meet the new boss.

To hear the leaders talk you would think Labor and the Coalition were miles apart.

One created a “budget emergency,” the other a “$70 billion black hole”.

But the credit rating agencies don’t believe a word of it.

Standard & Poor’s said on Monday it expected the new government to pursue a “broadly similar” strategy to the old one.

“After six years in opposition, the center-right Liberal–National Party coalition won the right to form government. We expect the new government to pursue a broadly similar fiscal strategy to the previous government, targeting narrowing budget deficits over time,” it said in a statement.

“In line with the Coalition’s pre-election announcements, we expect new spending measures - such as infrastructure projects and a new paid parental leave scheme - to be broadly offset by savings measures, particularly cuts to the bureaucracy and unwinding of recent policies related to household payments.”

Moody's Investors Service expected no change to Australia’s budget framework.

"Moody's AAA rating of the Australian government is based on the long-standing fiscal policy framework that results in balanced budgets or surpluses and low government debt in relation to other highly rated sovereigns," it said.

"We believe that the return to power of a Coalition government will not result in changes to the framework.”

Fitch Ratings thought the Coalition would “remain on track” to deliver a modest budget surplus in 2017, “broadly in line with the roadmap set by the outgoing Labor government”.

“This reflects the absence of deep ideological divides between the two main parties on core aspects of fiscal management, notwithstanding political differences on a few taxation policies,” it said...

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“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.”

All three reconfirmed their AAA credit ratings for Australia.

Standard & Poor’s said Australia’s budget policies had been “conservative”, leading to “declining budget deficits and general government debt remaining low”.

Moody’s said the current string of “modest deficits” stemmed from the global financial crisis. Economic growth would remain "somewhat subdued" during 2013, picking up in 2014.

Fitch said growth had begun to slow in the wake of a “topping out” of mining investment. Sustaining GDP growth at its potential rate of 3 per cent could prove “challenging”.

In The Sydney Morning Herald and The Age


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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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If I hear one more person tell me to bring down the dollar - straight talk from Parkinson

Treasury boss Martin Parkinson is losing patience with people who call for action to bring down the dollar.

“I will be completely open with you,” he told the Sydney Institute last night. “Anybody who thinks you talk down the dollar or talk up the dollar is a fool.”

“I mean what drives the dollar? What’s driven it up is the rising terms of trade. The world is trying to give us a massive amount of wealth.”

“If I tried to lower the dollar I would be really saying I am going to take part of that wealth, pour petrol on it, and I’m going to burn it.”

“If you want to live in that world, that’s fine, but I don’t think it’s sensible for the long-term living standards of the Australian people.”

The Treasury secretary also took a swipe at ratings agencies who he said were trying to overcompensate for past mistakes...

“They are becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm. If you’ve got a small check list of indicators and you bang through it, you never really understand the circumstances.”

China was succeeding in slowing its economy without a hard landing. “I am not worried about it,” Dr Parkinson said. “The more we can get them to start to using proper instruments of monetary policy rather than direct lending controls the better we will all be.”

Europe would almost certainly enter recession next year. The only question was about how deep it would be and how long it would last.

“Our assessment is that if everything goes well the recession could be shallow and over soon,” he said. “ If it doesn’t it could be protracted indeed.”

Greece in particular was in a vicious circle. Every time it reassessed its economic situation it revised down growth and wound back its budget, pushing down economic growth further.

Its economy was now expected to sink 8 per cent over two years and the budget would need to shrink almost 25 per cent over three years.

Fortunes in the United States appear to have turned, but the failure of the Congressional committee tasked with finding budget savings has triggered automatic spending cuts that were likely to cut US GDP by up to 0.75 percentage points in 2013, “a potentially significant shock to what was still likely to be only a still modest recovery”.

Published in today's SMH and Age


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They'll trash the economy. Yea, sure. Agency gives Australia top billing anyway

Whatever the shape of the next government, Australia remains a magnificent investment proposition.

The credit rating agency Standard & Poor's has reaffirmed Australia's top AAA rating saying there's no point in waiting for an election outcome because it won't make any difference.

However the agency warns of other risks including a collapse in the housing market and a squeeze on one of our banks.

"During the election it was comforting to us that both leaders were trying to almost outdo each other in a race to return to the budget to surplus," said S&P credit analyst Kyran Curry.

"There's been a lot of talk about rising levels of debt, but on a comparative basis Australia's debt remains low. In fact Australia is a stand out, even among AAA rated sovereigns."

Standard & Poor's decided to release the results of its annual reassessment of Australia ahead of the announcement about the new government in order to signal that it didn't matter...

"We've been getting a lot of questions from offshore investors and sidewards glances the longer this goes on, said Mr Curry. "We want to make it clear that no matter what the makeup of the government there is a strong commitment to fiscal conservatism here and a stable, mature and transparent political system you don't see in many other places."

"It is telling for us that the independents sought advice from the Treasury about the true state of the government's fiscal position," said Mr Curry. "Australians live well beyond their means but they expect the governments not to. There's a level of sophistication we don't often see elsewhere."

The agency says the risks to Australia's AAA rating include its dependence on commodity exports and its exposure to a housing market correction.

"Existing house prices have climbed about 50 per cent in five years," said Mr Curry. "The risk of a collapse is more elevated than in previous years. Australia's banks are heavily exposed to the residential property market. If one of the banks blew up we would be taking a look at the sovereign rating."

"This is not what we think is likely. Australia's banks are sound, liquid, well capitalised and we have given them some of the highest ratings in the world."

"What is most likely is a gradual drag on house prices rather than a collapse. We certainly don't see the growth of recent years as sustainable."

Australia has enjoyed the world's top credit rating since 1992 after losing it 1986 at the height of the "banana republic" currency crisis.

It shares the AAA rating with Canada, Germany, Singapore and the United States and also with the United Kingdom, although the agency has just placed the UK on "negative watch".

"We are worried about the commitment of the new UK administration to fiscal consolidation. It is not a worry we have here," said Mr Curry.

Treasurer Wayne Swan said Standard & Poor's had endorsed Labor's management of the crisis, and its plan to get the Budget back to surplus in 2013.

The Reserve Bank board meets in Adelaide today and will later release a statement outlining its view of the Australian economy.

ANZ job advertisement figures released yesterday showed advertised vacancies climbing a further 2.6 per cent in August. The TD Securities inflation index showed prices climbing at an annualised rate of 2.4 per cent.


Top billing

Australia AAA
Canada AAA
Germany AAA
Singapore AAA
United States AAA

United Kinggdom AAA, outlook negative

New Zealand AA+

Ireland AA, outlook negative
Japan AA, outlook negative
Spain AA, outlook negative

China A+

Russia BB+
Greece BB+, outlook negative

Standard & Poor's sovereign ratings

Published in today's SMH and Age


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AUSTRALIA'S Treasurer has offered cash-strapped Australian states a lifeline, promising to let them use his government's AAA credit rating in return for a fee.

The move will be of minimal use to Victoria which already has a AAA rating but be vital for NSW whose AAA rating is on "negative watch," for Western Australia whose AAA rating is at risk and for Queensland whose rating has been cut to AA+.

Until the announcement, made after a Treasurers' meeting in Canberra, Queensland had been finding it harder to borrow than had the banks, building societies and credit unions that made use of the Commonwealth's wholesale funding guarantee.

"The credit market has been dysfunctional," said Queensland's Treasurer Andrew Fraser. "This will allow us to deliver infrastructure".

RBC Capital Markets fixed income strategist Su-Lin Ong said the state fund raising market had been "effectively illiquid and frozen" since the downgrade of Queensland on 20 February 20", tarnishing every states' attempts to borrow...

A spokesman for Victoria's Treasurer John Lenders said he did not expect his state to make use of the guarantee, promising "business as usual".

Australia's states have 28 days in which to decide whether to accept the offer for their existing debt.

Deutsche Bank Australia economist Tony Meer said expected states such as Victoria to join up regardless of their protestations in order to avoid "orphaning" their existing debt.

TD Securities economist Stephen Koukoulas said the debt to be "hoovered up by investors at a rapid rate" given the Commonwealth's AAA guarantee and also the high yield being offered by states.

Meeting as the Loans Council, the state and Commonwealth Treasurers yesterday approved $13 billion of state borrowing during this financial year and $26 billion in the next.

Much of the money will be used to fund with the Commonwealth the big-ticket infrastructure projects due to be given a tick by Sir Rod Eddington's Infrastructure Australia task force within days.

It will also make it easier for state governments to borrow on their own if their private partners in infrastructure projects drop out.

Mr Swan offered the Opposition a briefing and called for bipartisanship. But Shadow Treasurer Joe Hockey said gave no guarantee of support for the legislation saying the Treasurer had made a bad situation worse.

"This is a direct consequence of the government guarantee of bank funding. Banks have been competing with the states, making it more expensive and harder for the states to fund themselves," he said.

Mr Swan stressed that the offer was temporary, to be lifted when “normalized credit market” conditions return. "We don't want to stay in this groove for any longer than we have to," he said.

The guarantee will be limited to borrowing in Australian dollars. Economists say this will support the dollar as offshore lenders buy them in order to lend them to Australian states.

In a further bleak economic development yesterday Japan announced record drops in both exports and imports. Japan's exports effectively halved in the year to February, sliding 49.4 per cent. Its imports slid 43 per cent.

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