Treasurer Chris Steel insists he has got the balance right. Photo: Ian Bushnell.
ACT Treasurer Chris Steel has called on the Legislative Assembly to pass his Budget after global ratings agency S&P downgraded the Territory’s credit rating from AA+ to AA due to its large deficits and rising debt.
S&P’s decision follows the 2023 downgrading from the highest rating, AAA, to AA+, the first in 20 years.
Mr Steel said members of the Assembly had a responsibility to pass the Budget with its savings and revenue measures intact to put the Territory’s finances on a path back to surplus.
He said the Assembly had baulked at some of these measures, and resolutions continued to be carried calling on the government to spend more.
“I just ask the members of the Legislative Assembly to consider when they’re putting forward motions and legislation that they consider what impact that might have on the ACT’s budget,” Mr Steel said.
“And also the impact that that has on the resources that we have within the ACT public service, that have to be diverted away from more urgent tasks, particularly in the healthcare system, and the education system, and community services and other areas, to make sure we can continue to deliver for the community.”
Mr Steel would not be drawn on even more savings measures or new levies and taxes, and justified the level of debt, which is only second to Victoria, as necessary to fund generational infrastructure projects that were needed to support a growing population heading for 700,000 people by 2050.
Nor would he consider pushing back elements of the infrastructure pipeline.
“We have a range of projects that we need to deliver to support the growing community, new and upgraded schools, hospitals to support, and healthcare services for the community,” Mr Steel said
“What the government’s role, my role as treasurer is, is to balance those priorities that support the community whilst also making sure that the budget is on a sustainable path. I think we’ve got that balance right.”
Mr Steel said S&P had said that any future surpluses should be used to pay down debt, and the government would consider this.
He said part of the government’s fiscal strategy was to pay off the unfunded superannuation liability in the middle of the next decade, and that would provide “further headroom” in the budget at that time to be able to pay down the net debt.
S&P identified health spending as a pressure point, and Mr Steel countered by pointing to the health levy and reprioritising of resources to put more money into the health system, as well as pressing the case with the Commonwealth for a greater share of funding through the next National Healthcare Agreement.
Mr Steel brushed off suggestions that the government had lost its way, saying the budget measures were fiscally responsible and designed to restore the Territory’s finances.
Canberra Liberals treasury spokesperson Ed Cocks: the only answer was fiscal discipline. Photo: Michelle Kroll.
S&P clearly did not agree, warning that it could lower the ratings again if it believed financial management was weakening.
“The Territory has implemented some initial operational savings and efficiency measures in this budget, though we expect improvements to its operating accounts will be gradual,” it said.
S&P expected the ACT’s operating accounts to remain in deficit until fiscal 2027 due to rising health costs.
As well, higher capital spending would weigh on overall cash deficits, driving the Territory’s debt above that of all rated Australian states except Victoria.
“Weaker fiscal outcomes could drive total tax-supported debt to more than 240 per cent of operating revenue or interest expenses to more than 10 per cent of operating revenue. It could also structurally weaken liquidity coverage.”
The downgrade reflected another delay in ACT’s return to a cash operating surplus and a further deterioration in deficits after capital accounts.
S&P expected the ACT to return to a slim operating surplus in 2027, marking five consecutive operating deficits since 2022.
It said an increase in capital spending, including for new projects added to the pipeline in the latest Budget, was likely to push ACT’s deficits after capital accounts above 10 per cent of total revenue over the next two years.
“These weaker outcomes will also drive ACT’s total tax-supported debt toward 200 per cent of operating revenue, well above our prior expectations,” S&P said.
The ratings agency estimates the ACT’s operating deficits will be about 8 per cent and 1.9 per cent of operating revenue in 2025 and 2026.
It said these were much weaker than previous expectations for a 1.4 per cent operating deficit in 2025 and a 3.7 per cent operating surplus in 2026.
These weaker fiscal forecasts reflected growing health costs, as well as wages and interest costs outpacing revenue growth.
“ACT’s operating deficits are weak compared with many subnational governments rated in the ‘AA’ category globally,” S&P said.
The only way back to a higher rating was to restore surpluses.
Nonetheless, the ACT continued to benefit from its strong financial management by global standards, a very high-income economy closely linked to a stable public sector, and exceptional liquidity.
“ACT’s economy continues to grow consistently, underpinned by robust public demand from the Commonwealth government and a strong labor market,” S&P said.
S&P affirmed its ‘A-1+’ short-term rating.
Canberra Liberals treasury spokesperson Ed Cocks said the downgrade would leave Canberrans worse off and paying the price of Labor’s budget failure and more than a decade of weak fiscal discipline.
“This is where years of budget blowouts and no fiscal discipline get you,” Mr Cocks said.
“Canberrans were already on track to see 26 per cent of every dollar raised by ACT Government taxes thrown away on interest. Now that is likely to be even higher. Every extra dollar that is paid in interest is a dollar not going to hospitals, schools or community safety.”
Mr Cocks said the downgrade would push up borrowing costs and add even more pressure to frontline services at a time when households are already paying more.
He said the only answer was fiscal discipline and a clear path back to a balanced budget.
