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Legislative Council - Fifty-Fourth Parliament, Second Session (54-2)
2021-08-24 Daily Xml
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State Finances

The Hon. D.G.E. HOOD (15:16): My question is to the Treasurer. Can the Treasurer update the council on any recent commentary by rating agencies on the state's finances?

Members interjecting:

The PRESIDENT: Order! I had trouble hearing that question, so I am going to ask the Hon. Mr Hood to ask it again.

Members interjecting:

The PRESIDENT: Order! The Minister for Human Services and the Leader of the Opposition, if you want to have a conversation, you can take it outside.

The Hon. D.G.E. HOOD: As I said, my question is to the Treasurer. Can the Treasurer update the house on any recent commentary by rating agencies on the state's finances?

The Hon. R.I. LUCAS (Treasurer) (15:17): I thank the honourable member for the question. I think it has already been publicly reported that the first rating agency to maintain the state's credit rating was Moody's, but since the parliament last sat the Fitch rating agency has issued its rating action commentary on South Australia's finances under the heading 'Fitch affirms South Australia at "AA"; Outlook Stable'.

In simple terms, it has maintained its existing credit rating for South Australia, which is a huge benefit for the taxpayers of South Australia. The commentary included in that ratings report is as follows:

The affirmation—

that is, of the AA—

is supported by our reassessment of the state's risk profile to 'Stronger', from 'High Midrange', which offsets a debt sustainability score that has been lowered to 'a', from 'aa'. This results in a Standalone Credit Profile (SCP) of 'aa'—

which is a maintenance of the existing rating with a stable outlook. In further commentary, Fitch notes:

…the 'Stronger' risk profile assessment offsets the higher debt burden and enables the 'aa' SCP to be retained.

Under the subheading of Risk Profile 'Stronger', they comment:

This results in us raising South Australia's risk profile to 'Stronger', from 'High Midrange', and reflects a negligible risk relative to international peers that the issuer's ability to cover debt servicing with its operating balance will weaken over our 2021-2025 forecast period due to a drop in revenue, higher expenditure or an unanticipated rise in liabilities or debt-servicing requirements.

Put simply, Fitch, in commentary in relation to our financial position, looking at our revenue, the way we manage our expenditure and our rise in liabilities, comments that there is a negligible risk relative to international peers, given the state's finances.

Under the important metric of expenditure sustainability, the agency comments that they have rated South Australia as stronger. In that they comment as follows:

South Australia has a good record of control over its expenditure growth generally at or below the revenue growth trend.

Further on in the same section:

The state remains committed to fiscal discipline, including implementing a number of cost efficiency measures and achieving annual budgetary surpluses. This will be key over the medium term amid budgetary pressure from the pandemic as the state commits additional funding to its health response and economic stimulus measures. Co-funding arrangements with the federal government will provide budgetary support.

In summary, Fitch, as the second of the rating agencies to provide commentary, have commented, first, on the government's management of expenditure, it has had a look at our debt management profile and, importantly, has maintained the credit rating for the state.

The remaining important credit rating agency that has yet to finalise its commentary on the state's rating is Standard and Poor's. We anticipate in the next few weeks that they will bring down their final commentary on the state's budget and economic performance, and we will be in a position to update the house on Standard and Poor's assessment of the state's budget circumstances.

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