S & P ratings agency revises South Australia economy outlook from negative to stable

The strength and wealth of South Australia’s economy has triggered a major rethink from a top international credit ratings agency.

The strength and wealth of South Australia’s economy has triggered an improved outlook from influential credit rating agency S & P, which highlighted an increase in business investment and nuclear-powered submarine construction.

Revising its long-term outlook from negative to stable, S & P Global Ratings on Thursday said this was due to SA’s economic growth, control of expenditure increases and a forecast larger-than-expected share of GST revenue.

But the ratings agency warned of cost overruns, skilled labour shortages and project delays in key projects like the North-South corridor, new Women’s and Children’s Hospital and Whyalla hydrogen plant, because of record infrastructure construction across the country.

S & P affirmed a AA+ rating for SA, as did fellow ratings agencies Fitch and Moody’s.

S & P said the stable long-term outlook reflected its view that SA’s financial management would help it deliver sustained state budget operating surpluses, while ensuring revenue increases outpaced expenditure.

“The general strength and wealth of the local economy support our ratings on South Australia,” the agency said.

“ … South Australia now has higher new business investments than in the past. Significant defence projects under construction and in the pipeline will support growth in the economy and labour market over several years. Public infrastructure investments and a pipeline of mining projects will support economic growth.”

Premier Peter Malinauskas (right) and Treasurer Stephen Mullighan with the 2023 budget papers on June 15. Picture: NCA NewsWire / Emma Brasier.

S & P notes the June budget did not roll out any new taxes but says revenue outlook was improved by increased income from payroll, property and gambling taxes, along with an expected rise in GST receipts.

Debt was forecast to remain at stable levels interest expenses were predicted to “remain moderate at 5.3 per cent of operating revenues” between now and 2025 – an assessment unchanged by any extra interest rate rises.

Capacity constraints caused by Australia’s record infrastructure spend meant the state would struggle to spend all of its capital budget, meaning S & P predicted only 80 per cent would be expended annually.

Fitch described SA as a “relatively low-tax jurisdiction”, while Moody’s said the state’s debt burden was lower than others.

Treasurer Stephen Mullighan said the three ratings agencies had reaffirmed the government’s “commitment to prudent fiscal management”.

“The decision of S & P to remove SA from negative outlook on the back of our first

two budgets is welcome news,” he said.

“These credit opinions make it clear we have the capacity and financial discipline to

deliver our agenda.”