IT has been heralded as some sort of magic number - the 47 per cent debt-to-revenue ratio that is somehow tied to the state's financial future.
IT has been heralded as some sort of magic number - the 47 per cent debt-to-revenue ratio that is somehow tied to the state's financial future.
That is the number that, early in his premiership, Geoff Gallop committed his government to staying under in order to maintain the state's AAA rating.
These days, with revenue plunging and costs yet to be reined in, that number is under assault and Treasurer Troy Buswell is using its commitment to maintaining the AAA rating as a tool to communicate the importance of a budget that cuts government spending.
And that may be fair enough. With a declining fiscal position, the state's AAA rating saves it around $200 million a year in interest payments. It also gives the state credibility in global lending markets. With banks apparently looking less favourably on sub-sovereign entities such as states, this is an even more important indicator of financial health.
Chamber of Commerce and Industry WA presented two submissions linked to the budgetary process. One was a pre-budget submission, the other a submission on the Royalties for Regions inquiry by the state's legislative council, prompting an appearance by CCIWA chief executive James Pearson this week before the parliamentary committee assessing the policy.
CCIWA believes that the AAA rating should be a priority for the government and is concerned about losing that status.
"The potential loss of the state's AAA credit rating is of concern, because it affects the government's borrowing costs directly, as well as providing a negative signal to investors and the wider business community on WA's risk profile and commitment to fiscal prudence," CCIWA said in its pre-budget submission.
The problem is that 47 per cent is an arbitrary number, which makes a lot of sense in theory but may prove tougher to live up to practice.
The Department of Treasury is predicting that debt will jump to around $16 billion in 2011-12, which, along with limping revenue, will push that figure to over 60 per cent.
That would appear to damn the AAA rating, however, rating agency Standard & Poor's is not quite so cut and dried on the matter - it is more an art than a science, apparently.
"The mid-year review is projecting a deterioration of the operating position from a surplus of 10 per cent of revenue in 2008 to a deficit by 2012, while non-financial public sector net financial liabilities are projected to reach 80 per cent by 2013, which is only marginally less than the level of 90 per cent of revenue that S&P has identified as a potential trigger for downgrade (other things being equal)," S&P said in its last research update on December 18.
"A continuation of this trend is unlikely to be consistent with the 'AAA' rating."
S&P credit analyst Anna Hughes said the numbers the agency worked with were different from those the state used.
The rating agency considers all government debt and revenue, including corporations such as energy utilities.
Should the state reach that 80-90 per cent on S&P's figures, it prompts a review.
"Basically we have a range where we would be looking to reassess ratings," Ms Hughes said.
"It doesn't mean automatic downgrading but we would look at whether it was going to be above 80-90 per cent and what the government was doing about it."
Ms Hughes said the agency also considered the economic circumstances and did not expect to see governments act irresponsibly just to maintain a benchmark - especially if the issue was a short-term one, perhaps lasting just a year.
"We are looking at trends."
Many watching the government believe the AAA rating is worth retaining as the last check on fiscal responsibility