Fitch: Budget assumptions ‘reasonable’

Oksana Patron

11 May 2023

The return to an underlying cash surplus in the current fiscal year combined with improvements in the Federal Government’s fiscal position has been supportive of Australia’s ‘AAA’ sovereign rating, according to rating agency, Fitch Ratings.

Commenting on the 2023 Australian Federal budget, announced on Tuesday night, Fitch director, sovereigns – APAC, Jeremy Zook said that fiscal outcomes were stronger compared to expectations when the agency last affirmed its rating for Australia with a Stable outlook in December, 2022.

He praised a decision to allow higher than expected revenue collection to flow through to budget outcomes by keeping spending relatively contained, which, according to Zook, pointed to the Government’s commitment to its fiscal strategy and would not contribute further to inflationary pressures.

“We think the budget assumptions are reasonable and commodity price assumptions remain modest compared to our forecasts. Still, downside risks persist given the weak global outlook, elevated inflation and high interest rates,” he said.

At the same time, Zook warned that structural budget pressures were expected to remain over the medium-term, with the budget forecast to return to modest deficits over the coming years.

“Modest deficits are likely consistent with the current rating level, but if growth underperforms the upwardly revised budget forecasts, risks to the fiscal path and rating would build in the context of underlying spending demands, particularly from the NDIS,” he concluded.