A difficult year for the Turnbull government will conclude with a downbeat message to voters on the economy and a potent political gift to its opponents if ratings agencies don’t like what they see.
The government will kick off the week before Christmas with the mid-year economic update and it’s expected to be a sombre affair, sending voters off on their holidays with nagging doubts about the health of budget.
Less than a fortnight after new data showed the economy was thrown into reverse gear in the three months to the end of September, some pundits fear the update could be followed by a downgrade to the nation’s debt rating.
While that would fuel opposition attacks on the government’s economic credentials, one senior minister was out on Sunday seeking to manage expectations.
Finance Minister Mathias Cormann warned that a rise in commodity prices would not be enough to counter a decline in economic growth, but he wasn’t prepared to second guess what the agencies would do.
He said the agencies were looking at the Parliament’s attitude and approach to the government’s budget plan, and was quick to point out again the $22 billion of savings implemented since the July 2 election.
“We are clearly making headway. We are clearly heading in the right direction,” he told Sky News.
Unsurprisingly, the opposition sees matters differently.
Shadow finance spokesman Jim Chalmers said the Turnbull government had a “record of incompetence” for all to see – growing deficits, a shrinking economy and full-time job losses.
“The Turnbull government has no one to blame but themselves for a deterioration in the budget,” Dr Chalmers told reporters.
“If the triple-A credit rating is lost by Malcolm Turnbull and Scott Morrison, it will smash confidence in our economy and it will push up borrowing costs for households and small businesses.”
Ratings agencies ready to pounce
Global rating agencies Standard & Poor’s and Moody’s Investors Service have repeatedly warned the AAA rating could be in jeopardy if the nation’s finances weren’t brought back into order.
S&P already has the rating on a negative outlook, while Moody’s last week issued an ultimatum – provide realistic forecasts or else.
Senator Cormann refused to be drawn on whether the government’s aim of a budget balance by 2020/21 would still be included in Monday’s budget outlook, but said the Coalition remained on track to improve the bottom line.
“There will be a projection in the budget update, that will also show when the budget is expected to return back to surplus,” he said.
“But I will leave it to the official release of the Mid-Year Economic and Fiscal Outlook tomorrow to publicly reveal when that is expected to happen.”
All eyes will be on the reaction of credit agencies to MYEFO and whether they will trigger a credit downgrade if the document does not provide a credible path back to surplus.
Credit agencies looking closely
He warned credit agencies were “looking very carefully” at the attitude of Federal Parliament to the Coalition’s proposed savings.
“I am not going to speculate on the decisions that the ratings agencies may or may not make. That is a matter for them,” Senator Cormann said.
“[Mr Morrison] needs to be working with the crossbench to ensure that we do bring in that revenue. We know that, for example, the diesel fuel rebate could bring in billions of dollars to pay for schools and hospitals.”
It suggests the forecast 2016/17 budget deficit of $37.1 billion will be even bigger when the mid-year economic and fiscal outlook is handed down at noon on Monday.
Economists also believe the 2016/17 economic growth forecast of 2.5 per cent will be lowered after the recent national accounts showing the economy went backwards, postings its worst performance since the 2008-2009 global financial crisis.
-with AAP, ABC