Labor to Inherit a Better Budget than Predicted: Standard & Poor’s

A sign for Standard & Poor's rating agency stands in front of the company headquarters in New York, the United States, on Sep. 18, 2012. Emmanuel Dunand/AFP via Getty Images

Global credit rating agency Standard & Poor’s (S&P) has said that the federal budget to be passed down to the incoming Labor government is in better condition than previously forecast.

In addition, it said that Australia’s AAA rating and its stable outlook would remain unchanged despite the new government taking office.

This comes after Prime Minister Anthony Albanese, Treasurer Jim Chalmers, and Finance Minister Katy Gallagher were sworn in on May 23 following Labor’s victory at the federal election.

S&P also said that the new government had pledged to make investments in a wide range of sectors, including energy, manufacturing, housing, childcare, health, and education.

“We will examine the new government’s policies and their impact on the economy and fiscal outcomes when more details are known,” S&P said in a statement on May 23.

At the same time, the credit rating agency noted that Labor had promised to release a budget before the end of this year.

“We expect this budget to set the fiscal tone and tolerances for spending,” it said.

Australia's new Prime Minister Anthony Albanese (C) poses with his new cabinet ministers, Penny Wong (L) and Richard Marles, after the oath taking ceremony in Canberra, Australia, on May 23, 2022. Saeed Khan/AFP via Getty Images

S&P also expected that Australia’s fiscal outcomes would be more positive than what had been predicted in the March 2022 budget due to economic recovery and high commodity prices.

“We believe a significant upside is likely because commodity prices will outperform budget assumptions. Further, inflationary pressures will drive nominal GDP and taxes higher,” it said.

“It will take significant spending during the last three months of the 2022 fiscal year to hit the budgeted deficit of $85.8 billion (US$60.11 billion).”

Furthermore, S&P said that Australia’s debt levels were somewhat similar to other countries with the same credit rating and did not currently pose a risk.

“In addition, we expect borrowing costs to remain manageable,” S&P said. “Despite interest rates rising from recent lows, they are still lower than in the past.”

Meanwhile, the Australian Bureau of Statistics will release a number of significant economic figures over the week commencing May 23, starting with March quarter construction data on May 25.

Economists anticipated the number of construction work completed in the March quarter to increase by 0.9 percent compared to a dip of 0.4 percent in the December quarter.

It is also expected that retail spending’s contribution to economic growth in the March quarter will be smaller than in the previous three months, while business capital expenditure will go up by 1.3 percent during the same period.