When Albo’s spending craze brings huge consequences, shocking warnings on Australia’s future
Anthony Albanese has been warned that high government spending and budget deficits could harm Australia’s key credit ratings over the next decade.
Government payments will reach $777.5 billion in 2025-26, accounting for 27% of GDP.
Outside of the pandemic, spending levels were the highest proportion in the national economy since 1986.
The Ministry of Finance also predicts a budget deficit over the next decade, with government debt exceeding Rs 1 in the next fiscal year as expenses are lost in the national disability insurance scheme.
High government spending is a problem
Now, credit rating agency Moody’s warns that unsustainable high government spending is a threat to the stable credit rating of Australia’s AAA without steps to address the tax.
Treasurer Jim Chalmers raised priorities to boost productivity, but Moody’s suggested addressing the budget deficit.
There are no surplus forecasts in the coming years as the economy slows in China, Australia’s largest trading partner, weakens and erodes federal corporate tax revenues.
Anthony Albanese has been warned of a high government spending and budget deficit over the next decade that could harm Australia’s credit ratings
“Besides productivity, the main challenge facing the new Albany government is to increase budget repairs,” Moody’s said.
“The government has clearly limited the rise in areas such as the national disability insurance scheme, affordable housing and extensive infrastructure.
“Unrestricted spending pressure will put pressure on fiscal indicators without tax reforms that expand the tax base, with negative credit.
“Further fiscal consolidation at the federal level will offset the sharp increase in fiscal deficits and debt at the state level, thus reducing the prospective pressure on sovereign ratings. ”
Budget deficit forecast
The Ministry of Finance predicts that the budget deficit in 2025-26 will be US$42.1 billion, accounting for 1.5% of GDP.
Fitch warns that budget deficits, one percent of GDP, may be in the next decade.
“We predict subsequent fiscal consolidation modestly, but expect continued fiscal deficiencies to account for about one percent of GDP in the medium term,” it said.
“The increased spending on national disability insurance schemes, aged care and health care may widen the deficit, but we expect the new government’s efforts to manage these structural pressures. ”
Government debt of $100 million
Total government debt is expected to climb above Rs 1 in the next fiscal year.
That equals 35.5% of GDP, but once state government debt is added to the new transportation infrastructure, the figure soars to more than 50% of the economy.
Credit rating agency Moody’s warns that unsustainable high government spending is a threat to the stable credit rating of Australia’s AAA (as shown in the picture, Sydney commuters)
Fitch said Australia’s fiscal deficit and debt account for 50% of GDP are both high compared to other “AAA” rating peers.
Fitch warned that rising debt levels could harm Australia’s credit ratings.
Australia is harder to borrow money
The weaker credit rating makes it harder for the Australian government to borrow money to fund its plans.
This led to higher yields in government bonds, in which case investors were given higher annual interest payments to attract them to lend to Australia.
“In November, we said that the continued upward trend in the medium-term government debt ratio could impose a decline in Australia’s ratings,” Fitch said.
This can happen, for example, if the fiscal consolidation booth or economic growth is significantly weaker than what we expect under the benchmark.
“Government’s ability to address structural fiscal spending pressures or to increase productivity through reforms could have a significant impact on growth and fiscal recession.”
Uncertain economic situation
Australia’s economic growth rate in 2024 is much lower than the 30-year average of 3%.
But Fitch warned that Donald Trump’s tariffs could cause an economic slowdown in China, the largest buyer of Australia’s iron ore exports.
“The new administration will have to manage the economy through a more uncertain and challenging global context, especially with the increasing strategic and economic tensions between the United States and China,” it said.
“The direct impact of US tariffs on Australia should be moderate, but the indirect impact of China’s slow growth rate will be more meaningful. ”
