Budget options narrow: Moody's

Ratings agency Moody's has kept the federal government's credit outlook stable at AAA, despite raising concerns thar governments of both stripes had been unable to reduce spending or achieve fiscal consolidation.

Government debt has risen over the past decade, and although the rate of increase has decelerated rapidly in recent years.

In gross terms, debt is now 35.1 per cent, Moody’s said, and could reach 38 per cent by 2018.

But that would still be below the median level across AAA-rated countries.

The agency noted that the federal government had struggled to reign-in spending, and without such measures, would be left only with the option of raising taxes to balance the budget.

“Given previous difficulties in reducing welfare benefits, actual spending cuts may be modest,” the Moody’s note said. 

“Moreover, (Treasurer Scott Morrison’s) announcement excluded measures to raise revenues.

“Without such measures, limited spending cuts are unlikely to meaningfully advance the government’s aim of balanced finances by the fiscal year ending June 2021 and government debt will likely continue to climb, a credit negative for Australia.”

Moody’s numbers show the rapid increase in debt that took place from 2008 onwards.

In 2007, gross debt was below 10 per cent of GDP, while net debt was below zero.

By 2013, the gross figure was as high as 30 per cent.

“The government’s pledge to curb spending will be tested by significant spending commitments on welfare, education and health,” the report said.

“Despite a consensus on fiscal consolidation through successive administrations, the government has been unable to reduce expenditures to significantly below 36.5 per cent of GDP since 2009.”

Moody’s added that prospects for tax reform were fading, with GST changes ruled out and negative gearing changes opposed by the coalition.