The firm acknowledged the state’s “strong financial management” had ensured the Labor government had access to large sums of money as it tried to spend its way out of trouble,but said it would be watching with interest as the government tried to rein in its public-sector spending.
But the agency’s analysts were worried by the hits expected to the state’s main revenue streams — payroll tax and stamp duty — and by the sums of money the government was spending in its attempts to keep the economy afloat.
Treasurer Tim Pallas said he was glad the state had retained its AAA status from S&P.
Credit ratings are important to governments because they determine the rates at which treasuries can borrow money on the international bond markets,with a strong rating allowing cheaper debt.
With the Victorian government prepared to borrow up to $24 billion for its COVID-19 response,on top of large debt-raising to fund its ambitious infrastructure build,a loss of the AAA rating would be a financial as well a political blow.
S&P expects Victoria’s budget deficit to soar past $6 billion at the end of the 2021 financial year amid a recession before the economy and the state’s bottom line recover in 2022.