NAB warns that Australia could lose its AAA credit rating if the Federal Budget lacks fiscal restraint

THE National Australia Bank has warned that Australia faces losing its AAA credit rating, unless spending is reined in for the Federal Budget.

THE National Australia Bank has warned that Australia faces losing its AAA economic credit rating, unless spending is reined in for the Federal Budget.

The report by NAB’s global head of research, Peter Jolly, today came as a warning, while Treasurer Scott Morrison is knuckling down with just three weeks to go before he delivers his first budget.

Mr Jolly’s report stated that Australia faces an upcoming Federal election with Commonwealth debt already “pushing against ratings agencies’ AAA boundary”.

He indicated that more “fiscal restraint” will be needed “at least if keeping the AAA rating is … desired”.

“With a General Election at some point over the next six month, where the government and opposition will be releasing policy initiatives and making promises, a question for investors is whether fiscal restraint will continue,” it stated.

“The good news is that for now the ball remains in the court of the government. But it’s clear that to keep the ratings agencies comfortable with Australia’s AAA, the 3 May Budget will need to demonstrate ongoing fiscal restraint.”

The report comes as Mr Morrison is staying in Australia to finish final Budget preparations while Assistant Treasurer Kelly O’Dwyer will attend this week’s G20 and International Monetary Fund meetings in Washington in his absence.

Malcolm Turnbull and Treasurer Scott Morrison are under pressure to keep spending restrained in this year’s Federal Budget. Picture: Ray Strange

“As we prepare for the budget, this is where I need to be,” Mr Morrison he said.

The treasurer expects the Washington meetings will generate more discussions about the softening global economy.

In contrast, he says the Australian economy continues to make the transition from the mining investment boom to a more diversified and strong economy.

“Despite the strong headwinds we face, I think the Australian people have good reason to have confidence in what they’re doing in our economy, and we want to continue to back them as we prepare for the budget,” Mr Morrison said.

But that doesn’t mean the treasurer is about to go on a lavish spending spree on May 3, even if it is an election year.

It will be calibrated to deliver jobs and growth and, like Australian businesses and families, the government will live within its means.

“It means that you don’t make promises for which there’s no money, it means that you keep your expenditure control tight, it means that you reduce your spending,” Mr Morrison said.

The treasurer avoided confirming suggestions the government is considering plans to back a high-speed rail link between Melbourne and Brisbane, saying such issues will be addressed in the budget.

It is looking at all innovative ways to support better infrastructure, such as value-capture funding that uses increased land value generated from major transport projects as a potential source of money.

Originally published as NAB warns that Australia could lose its AAA credit rating if the Federal Budget lacks fiscal restraint