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Wednesday, April 21, 2021

ACT economy is above standard and far from poor, according to S&P

The ACT is now the only Australian State or Territory and the only sub-national government in the Asia Pacific with a AAA credit rating, Chief Minister Andrew Barr announced this week.

International credit rating agency Standard and Poor’s (S&P) awarded the ACT Government its highest credit rating: ‘AAA/A-1+’ Ratings Affirmed; Outlook Negative. 

“Our rating on ACT reflects its robust financial management; very high-income economy, which relies on the public sector and is outperforming most peers; and exceptional level of liquidity,” the report said.

This recognises the Territory’s stable fiscal position following the release of the 2020-21 ACT Budget, Mr Barr said.

The ACT was well placed to recover from the transitory shock of the pandemic, the report stated. Successful suppression of the coronavirus had allowed the ACT to quickly resume normal activity, setting the stage for a robust recovery. The ACT’s economy outperformed most domestic and international peers, the report stated.

“The ACT Government has stared down a big economic threat from COVID-19, and the approach we took to invest in our community and protect local jobs has been a success,” Mr Barr said.

The ACT’s budget performance would be weak in 2020–21 because of dampened revenues and higher spending on COVID-19 public health and economic support measures, S&P expected.

Since March 2020, the ACT Government provided several hundred million dollars of support in the form of rates rebates; freezing increases in rates, fees, and charges; a Jobs for Canberrans fund; accelerating minor capital works; and expanding investment in healthcare and social housing.

S&P’s report predicted that budgetary performance would improve from a low point in 2021. Debt would grow sharply before stabilising at a higher ratio by 2023.

The ACT’s taxation and grant revenues had taken a large hit from the COVID-19 downturn, but S&P expects operating and after-capital-account balances to improve during the next two years, propelled by an economic upswing.

The ACT Government has announced investment in infrastructure: public transport, hospitals, and education.

“We have an ambitious infrastructure pipeline that will create good local jobs in the years ahead,” Mr Barr said. “The Territory is also on track to reach our 250,000 local jobs by 2025 target.”

S&P predicts these infrastructure projects will drive up gross debt. The report believes delivery could be a challenge, because of capacity constraints and other states simultaneously ramping up their own infrastructure programs. S&P forecasts assume the ACT will deliver 80% of its budgeted capital program during the next three years.

The ACT and Australia as a whole were outperforming most other advanced economies in the post-pandemic recovery phase, S&P stated. The ACT was a high-income economy (GSP per capita of $95,695), and boasted the strongest labour market. The Gross State Product was predicted to expand by 2% in the 2020–21 financial year, following solid growth of 2.4% last fiscal year.

The ACT’s liquidity was exceptional, S&P stated: an estimated $1.85 billion in unrestricted cash in the Territory banking account.

However, there was a one-in-three chance the ACT’s fiscal and economic recovery could underperform forecasts, S&P noted. The agency could lower long-term credit ratings on the ACT during the next two years if recovery was delayed beyond current expectations, or if Australia’s credit rating were lowered.

“This work isn’t over, and the Government remains committed to supporting the growth of our economy over the coming decade,” Mr Barr said. The ACT Government will release the 2021-22 Budget in August 2021. Mr Barr said this Budget would deliver the services and infrastructure Canberra needs, while managing its fiscal recovery.

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