Australia’s AAA rating affirmed

Poppy Johnston | January 30, 2023

Ratings agency S&P Global has affirmed Australia’s AAA credit rating and expects the nation to dodge a recession despite glum global economic conditions.

The agency attributes the assessment to Australia’s improving budget position, with government deficits not expected to exceed two per cent of GDP between 2023 and 2026.

Australia’s low unemployment and high energy commodity prices also put the country in a stable position, with S&P anticipating economic growth over the next three years.

“We expect the budget to improve because of steady revenue growth, high commodity prices and expenditure restraint,” it concluded.

The agency also upgraded Australia’s government debt outlook to 30 per cent of GDP in 2024 from 34 per cent previously, with debt levels modest compared to other nations. 

Australia is one of only nine countries to be rated AAA by all three major credit rating agencies.

Treasurer Jim Chalmers said this acknowledged the Albanese government’s responsible budget management. 

“Australia’s strengthening fiscal position is a result of our responsible fiscal management which returned the majority of revenue upgrades to the budget while restraining growth in spending,” Dr Chalmers said.

He said the fiscal discipline would put the budget on a more sustainable footing while addressing high inflation. 

“We want to avoid putting upward pressure on prices and making the job of the independent Reserve Bank harder.”

S&P Global does expect growth to slow as interest rate hikes flow through the economy.

Under the worst-case scenario – where the economy underperforms, government spending lifts and commodity prices weaken substantially – the rating agency may be forced to lower its rating. 

“We could lower our ratings if we believe the general government deficit is unlikely to narrow over the next two years, causing debt and servicing costs to rise,” it said.

The strong labour market is also delivering higher wages, with the Employment Hero small and medium sized enterprise index showing the median hourly wage growing 8.2 per cent over the 12 months to December.

Median wages flatlined over November and December but lifted 1.2 per cent in December as per the index’s measurements.

The index, which is not seasonally adjusted and includes penalty rates, allowances and bonuses, relies on data from 135,000 small- and medium-sized businesses.

Employment Hero chief executive officer Ben Thompson said the uptick in wages was likely driven by the holiday period. 

“This growth did not flow into the median wage rates of under 18s or 18-24-year olds however, with both age brackets experiencing a decline of 7.5 per cent and 2.3 per cent respectively,” he added.

Finance Minister Katy Gallagher said slow wage growth had been a feature of the past decade and fair negotiations between unions and employers were key to unlocking higher pay packets.

The senator would not be drawn on whether the government would back the Construction Forestry Maritime Mining and Energy Union pushing for “significant” wage rises.

“It’s very unsurprising that a union would be arguing for better wages for its workers,” she told ABC radio. 

Official data shows wages lifting 3.1 per cent over the 12 months to September, trailing well behind the 7.3 per cent reading over the same period and the 7.8 per cent increase over the 12 months to December.

Senator Gallagher said effective bargaining between employers and unions would drive sustainable wage growth.

Last year, the Albanese government passed new workplace laws, including the expansion of multi-employer bargaining rights.