States’ credit ratings downgraded due to excessive spending despite revenue growth
Multiple Australian states are facing credit rating downgrades, necessitating spending cuts or risking higher borrowing costs.
New South Wales (NSW), Victoria, and the Australian Capital Territory (ACT) have all experienced credit rating downgrades by Standard & Poors, potentially resulting in increased taxes or charges for taxpayers.
As of June 30, 2024, Victoria’s net debt stood at $133.2 billion (US$83.3 billion) and is projected to rise to $187.3 billion by June 30, 2028.
By June 2024, NSW had a net debt of $96.8 billion, expected to increase to $110.5 billion in 2024/25 and $139.5 billion by 2027/28.
The ACT’s financial outlook is bleak, with a current net debt of $9.1 billion, showing a 2.8 percent decrease from the budget estimate, but marking a $1.5 billion increase compared to the previous year.
Additionally, S&P Global has cautioned that further credit downgrades could occur if cost-cutting measures are not implemented, questioning the financial management of these governments on a global scale.
NSW, the ACT, and Tasmania have negative outlooks on their ratings, while Western Australia has seen its rating improve to AAA since the pandemic.
Weaker credit ratings can lead to higher borrowing costs, impacting state budgets already under strain.
Revenue Up, But So is Spending
Despite above-forecast revenues in recent years, S&P has criticized state governments for spending recklessly rather than issues with revenue.
Between 2020 and 2023, states received nearly $150 billion more in revenue than predicted pre-pandemic due to a commodity boom, but operating expenses were $212 billion higher than budgeted, significantly surpassing additional revenues collected.
Amid rapidly increasing population, infrastructure spending rose from $64 billion in 2020 to a projection of over $100 billion in 2025 and 2026.
While infrastructure projects may be necessary, cost blowouts and poor budgeting have not been addressed, with states reluctant to reassess or scrap projects that no longer make fiscal sense.
Victoria leads in borrowings per person among major states, while NSW ranks second, and WA is the only state projecting a decline in borrowing per person in the next few years.
This article contains contributions from AAP.
