Victoria's budget black hole alarms ratings agencies
More than $20 billion needed to complete the first stage of the Allan government's $34.5 billion Suburban Rail Loop was missing from the state budget yesterday, as spending on public sector wages was forecast to rise to almost $50 billion.
The total wages bill including superannuation will climb from $45 billion this financial year to close to $50 billion by the end of the 2029 financial year, Tuesday's budget papers reveal.
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Herald Sun
4 days ago
- Herald Sun
What a downgraded credit rating would mean for Victoria
Victoria has been repeatedly warned its credit rating is at risk of a further downgrade amid a ballooning debt pile on track to hit $194bn. Treasurer Jaclyn Symes flew to New York on Wednesday to meet with the heads of major ratings agencies to defend the state's AA rating — already the lowest in the nation. But what is a credit rating and, more importantly, what does it mean for you and me if it is again downgraded. What is a credit rating? A credit rating assesses the creditworthiness of a borrower, such as the Victorian government or a company. This credit grade is expressed as a letter. The three main ratings agencies, Standard & Poor's, Moody's and Fitch, operate a scale running from AAA — the highest grade dubbed 'prime' — all the way down to C for Standard & Poor's and Moody's, and D for Fitch. The grade indicates a borrower's ability to repay debt and helps investors evaluate the risk of lending money to a government — by buying bonds which show up as government debt — or a company. What is Victoria's current rating? Victoria holds a AA rating from Standard & Poor's. It was downgraded by two notches from AAA in December 2020, falling to AA+ and then AA, in December 2020 due to ballooning debt. Moody's stripped Victoria of its AAA status in February 2021, before downgrading it from AA1 to AA2 in 2022. The state holds a AA+ from Fitch. None of these rating are prime but are 'high grade' and represent a 'stable outlook'. That said, Victoria's credit rating is lower than any other state in the nation. Why does the rating matter? Credit ratings affect the government's borrowing costs — governments with a AAA rating can issue bonds with the lowest interest rate possible. As a rating falls, the interest payments investors will demand in order to buy Victorian bonds rise as the bonds are viewed as being of higher risk. Those interest payments are an expense to the Victorian government and paid by every taxpayer. So a lower credit rating means a higher interest expense bill on the state's debt for Victorian taxpayers. What does it mean if it falls below a certain rating? Another downgrade would be a massive hit to the Victorian government. Victoria's net debt is tracking to weigh in at $194b by 2028-29, during which the state will be spending close to 10c of every dollar in taxation revenue on servicing it. The government can ill afford to be paying more on its debt, especially as it looks to raise funds to plough into its Big Build agenda and its signature pet project, the $34.5b Suburban Rail Loop. A further downgrade would heap pressure on Victoria's ability to finance major projects, a well as on the government to maintain services. What have the credit rating agencies said? The two main rating agencies have both warned the Allan-government over the handling of the state's finances. Standard & Poor's has said: 'Reining in growth in public spending, including the government's wages bill, and achieving promised operating savings are key to strengthening the financial outcomes. 'However, these goals have proven to be difficult to achieve in recent years. Fiscal discipline is important, especially in the lead-up to the 2026 state election, because we have seen many Australian state governments lose control of their budget in the lead-up to an election.' Moody's has said: 'Should the risks materialise, or reform momentum weakens, or both, the potential for higher-than-expected debt and interest burdens would further weigh on Victoria's credit profile.' What has the government said? Treasurer Jaclyn Symes has defended the state's finances, arguing the 'major credit rating agencies continue to project a stable outlook for Victoria's credit rating'. 'Those that want to talk down the state will choose to do so,' she has said. 'I will continue to talk up the Victorian economy.' On Tuesday it emerged Victorian treasury officials have done no modelling on the impact of a credit downgrade on the state's economy. 'The five step fiscal strategy is aimed at retaining the current credit rating and improving it over time,' Department of Treasury and Finance secretary Chris Barrett told a Public Accounts and Estimates Committee hearing.
Herald Sun
5 days ago
- Herald Sun
Victorian Treasury has not modelled impact of any credit rating downgrade
Don't miss out on the headlines from Victoria. Followed categories will be added to My News. In a staggering admission to parliament, Department of Treasury and Finance secretary Chris Barrett said the threat of a downgrade was not considered in this month's budget. 'The five step fiscal strategy is aimed at retaining the current credit rating and improving it over time,' Mr Barrett told the Public Accounts and Estimates Committee on Tuesday. It prompted a frustrated rebuke from the committee's deputy chair, Liberal MP Richard Welch, who accused the government of budgeting on the basis of 'hope'. Victoria's debt plan strategy, introduced in the 2023-24 State Budget, commits to managing and stabilising debt as a proportion of the total economy before finally paying it down. Latest forecasts show the state debt is expected to hover stubbornly around 25 per cent of Gross State Product until 2029 when it is tipped to peak at a record $194bn. At that time Victoria will be paying more than $10bn a year to service the debt. Treasurer Jaclyn Symes will fly to New York on Wednesday to meet with heads of ratings agencies who have repeatedly warned Victoria is at risk of a downgrade from its nation-low AA rating. Such a move would lead to increased borrowing costs and make it harder for the government to start lowering the state's debt profile. Mr Barrett said modelling had been done on a change in interest rates only, and not the impact of a credit rating fall. In a post budget report Moody's Ratings raised serious doubts about the Allan government's ability to cut spending and drive down its forecast $194bn debt. It specifically questioned assumptions built into the budget including slashing spending growth by almost half to 2.9 per cent and warned that increasing cost pressures from the $34.5bn Suburban Rail Loop and a 'political resistance to spending cuts' could wreak havoc with the government's debt repayment plans. It said while plans to axe thousands of jobs from the public service _ pending a review to be handed to government next month _ would curb inefficient spending, more work would be needed. 'We expect an improving economic backdrop to support Victoria's operating performance and help mitigate risks from high and rising debt and weakening debt affordability,' it said. 'However, global economic uncertainties and geopolitical tensions pose risks to the fiscal outlook.' Under questioning from the Opposition Ms Symes also refused to rule out using treasury advances for foreseeable budget overruns.
AU Financial Review
20-05-2025
- AU Financial Review
Victoria's budget black hole alarms ratings agencies
More than $20 billion needed to complete the first stage of the Allan government's $34.5 billion Suburban Rail Loop was missing from the state budget yesterday, as spending on public sector wages was forecast to rise to almost $50 billion. The total wages bill including superannuation will climb from $45 billion this financial year to close to $50 billion by the end of the 2029 financial year, Tuesday's budget papers reveal.
