Qld’s credit rating could drop to AA in 2025 – lowest since 2009

Queensland’s credit rating could this year drop to its lowest point since 2009, with one agency saying $130bn in infrastructure spending would need to be slashed to maintain the status quo.

Treasurer David Janetzki delivers the Mid-Year Fiscal and Economic Review on Thursday. Picture: John Gass

Creditors have warned Queensland’s rating could drop to AA at some point this year – the lowest since 2009 – after Treasurer David Janetzki forecast debt would balloon to a staggering $218bn by 2028.

Major creditor S & P Global confirmed to The Courier-Mail on Friday that Mr Janetzki’s mid-year budget review could see the state’s credit rating lowered at “some point later this year”.

The drop in rating would make future borrowings more expensive for the state government, with interest already forecast to rise by $9bn.

S & P Global Ratings director Anthony Walker said the state budget outlook was weaker than expected and the agency would need to “sift through the political narrative” before making an official assessment.

“While we are still digesting Queensland’s mid-year budget, yesterday’s announcement was substantially weaker than our expectations when we affirmed the rating in September last year,” he said.

“At face value the mid-year budget touches on aspects of our downside scenario which could see the rating being lowered to AA at some point in the future.

“Our job is to sift through the political narrative and form a view of where we believe the actual outcomes will be.

“For example, how much would the additional spending actually turn out to be? Can Queensland deliver more capex each year than NSW has? If not, then debt could be materially lower than the mid-year budget projections.”

Mr Janetzki this week revealed total debt would reach $217.8bn by 2028 – a significant increase on the $172bn forecast by the former Labor government in its final budget last year.

A $500m deficit in 2025-26 is also predicted to blow out to $6.9bn.

Less than 24 hours after the announcement, spreads on Queensland’s debt widened, indicating a decline in investor confidence.

Queensland Opposition leader Steven Miles and Deputy Cameron Dick. Picture Glenn Hampson

Mr Janetzki said S & P Global had warned him that Queensland’s credit rating was at risk last year, which he attributed to an increase in borrowings by Labor to pay for billions in cost of living relief.

Moody’s Ratings VP-Senior credit officer John Manning said he expected the state government would need to slash its $130bn infrastructure program to maintain its current credit rating.

“We expect it will target reprioritising its $130bn four-year capital spending program to substantially decrease the strain it is currently projected to place on debt affordability,” he said.

In a statement to The Courier-Mail, Moody’s Ratings warned that without “significant countermeasures” to either increase revenue or cut expenditure, the state’s Aa1 rating would be downgraded.

“We expect debt affordability, as measured by interest payments/operating revenue, will deteriorate significantly to 8.9 per cent by fiscal 2028 from 3.4 per cent in fiscal 2024,” Mr Manning said.

“Levels that may not be consistent with the current ratings.”

Mr Manning also noted that the new government had limited options due to its pre-election commitments to not introduce new taxes during its first term.

“This will limit its ability to use policy measures to raise revenue without potentially lowering its public standing and raising social risks,” he said.

“Notwithstanding ongoing economic growth, continued increases in operating expenses, combined with the state’s large capital spending program, increases execution risk as the new government pursues efforts to stabilise its rising debt burden and arrest the weakening in debt affordability.”

Opposition Leader Steven Miles said credit rating agencies had not expressed those concerns with the former government prior to the election.

“None of them were expressing the kinds of concerns that David Janetzki talked about yesterday, before the election, all of this has come as a result of the LNP’s determination to play politics,” he said.

The Opposition has labelled Mr Janetzki’s budget outlook as “dangerous for the economy,” with Mr Miles also accusing the government of deliberately inflating debt projection.

“It will cause those rating companies to have a second look,” Mr Miles said.

“What you’ve seen here from the LNP is them deliberately over-egging everything that they can find to give themselves room to move, to congratulate themselves when they ultimately come in below those projections.”

Mr Walker said rating agencies would be keeping an eye on how the new state government addresses the new-found cost escalations in its upcoming June budget, and how the blowouts will impact the 2032 Olympic Games delivery.

“The test for the new LNP government will be its first full year budget later this year,” he said.

“We are keen to see how it plans on addressing the major cost escalations disclosed in the mid-year budget and reining in its ballooning deficits and debt levels while delivering critical infrastructure for its growing population and the 2032 Olympics.”