States’ ‘lax financial discipline’ has earned a rebuke from a credit ratings giant, which says they are at risk of paying higher interest bills to service debt.
Australian states have copped a blast for being too loose with spending, in a warning signalling taxpayers might soon be forking out more to cover the costs of burgeoning debt.
S&P Global, one of the big three credit ratings agencies, warned states could face credit downgrades unless they cut costs while questioning if their governments had ‘strong financial management on a global scale’.
Three jurisdictions – NSW, Victoria and the ACT – have had their S&P credit ratings downgraded from those in place before the COVID-19 pandemic.
NSW, the ACT and Tasmania also have ‘negative’ outlooks on their current ratings, while only WA has seen its rating improved, from a AA+ to the top-line AAA level, since the virus hit.
A weaker credit rating can lead to increased borrowing costs, pushing up the interest bill for already stretched state budgets.
The ratings downgrades and negative outlooks come despite above-forecast revenues in recent years, causing S&P to lash state governments for loosening the purse strings.
‘The issue for Australian governments is spending, not revenue… their approach to fiscal discipline appears increasingly loose,’ agency analysts wrote.
S&P Global blamed ‘blowout’ construction projects and loose budgeting for souring credit ratings in Australian states (stock)
Victoria has the highest borrowings per person of the major states, with NSW a close second (pictured, Parliament House in Melbourne’s CBD)
‘We now question whether many states have exceptionally strong financial management on a global scale… if these conditions worsen or fiscal discipline weakens, credit quality may decline.’
Between 2020 and 2023, states received nearly $150billion more revenue than predicted before the pandemic.
That was largely driven by a commodity boom, with WA and Queensland dragging in $95billion of the extra revenue between them.
But over the same period, state operating expenses were $212billion larger than budgeted, $66billion more than they collected in additional revenues.
S&P said a booming population had driven record infrastructure spending from $64billion in 2020, to a forecast of more than $100billion in 2025 and 2026.
Project blowouts, attributed in some part to poor budgeting by states, had been matched with no appetite to reassess projects and scrap them if they no longer made fiscal sense.
‘States insist they are making ‘difficult decisions’ or ‘hard choices’… at the same time, spending continues to rise rapidly, and new projects are regularly announced,’ S&P wrote.
‘Some states have relied on out-of-date costings to justify the perceived net benefits… cost blowouts that highlight poor budgeting and governance practices could affect our view of financial management.’
Victoria has easily the highest borrowings per person of the major states, with net debt due to hit $188billion by 2028.
NSW is second among the larger jurisdictions, while WA is the only state forecasting a per-person decline in borrowing over the next three years.
