International agency Fitch Ratings cut the credit rating of South Australia by one notch to AA, from AA+, saying the state’s fiscal and debt position had deteriorated, with no recovery in sight for at least another three years.
The downgrade rejects the State Government’s recent forecast of a Budget surplus in 2016.
“Modest growth in operating revenue will enable the state to return to a Fitch-calculated surplus and reduce debt from Fiscal Year 2017 onwards,” the agency said.
Fitch gave the state a stable outlook, saying the state’s Labor government was focused on limiting expenditure growth through stringent cost-savings to offset liabilities including unfunded pension schemes.
The state’s financial position has been hit by declining revenues and spending measures including health and hospital spending.
“The base case includes an increase in debt to A$11 billion in FY16 from A$6.9bn in FY13,” Fitch’s assessment said.
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“Finally, the Outlook factors in deficits in the next three financial years and a return to surplus by FY17.”
But the agency said SA’s ratings could be downgraded further if the state’s operating margin continues to deteriorate over the forecast period to fiscal year 2017.
The downgrade reflects Fitch’s view that although SA is beginning to take measures to rebuild its financial position, the state’s fiscal and debt positions have deteriorated over the past five years and Fitch does not expect significant recovery for at least three more years.
SA’s share of the GST pool is forecast to decrease to 9.1 per cent in FY14 from 9.4 per cent in FY13.
However, the distribution South Australia will receive is expected to increase by $142 million (3.2 per cent) in FY14 as a result of growth in the national GST pool.
“The slow revenue growth is due to the weakness of the national GST pool and softness in the property market and domestic consumption.”
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Fitch’s debt estimate includes the recognition of the finance lease liability on the new Royal Adelaide Hospital of $2.8 billion.
Several rail infrastructure projects have been deferred to help rein-in ballooning debt.
The forecast makes its difficult for either major political party to make significant capital expenditure promises leading into the March 2014 state election.
A spokesman for the Premier Jay Weatherill said the ratings move was consistent with other agencies.
“The rating brings Fitch into line with Moody’s and Standard & Poors.
“It notes the Government is maintaining its infrastructure spend and services to the community.
“Fitch also notes the government’s improving fiscal position over the forward estimates.”
Shadow Treasurer Iain Evans jumped on the surplus forecast to attack the recently announced Labor plan for a Future Fund.
“Barely a week after the Premier announced his future fund plan, his promised surplus and fund start date have been blown out of the water,” Evans said.
“This follows an all too familiar pattern under this government – promise surplus and then spectacularly fail to deliver.
“Of six deficits budgeted in seven years, on every occasion a surplus was promised.
“The Premier who has handed down the largest deficit in the state’s history has again been embarrassed – his own forecasts have been called into question by a ratings agency that won’t be fooled by spin.”
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