Terry McCrann: Why Victoria’s downgraded credit rating isn’t such a big deal

If there was ever a good time to lose a AAA credit rating it’s now, writes Terry McCrann.

Victoria’s downgraded credit rating isn’t that big of a deal, writes Terry McCrann. Picture: William West/AFP.

If ever there was a good time to lose a AAA credit rating, it is right now – especially as NSW is coming down with Victoria and for exactly the same reason.

This is the soaring state debt – Victoria’s is going to $153bn, NSW’s ‘only’ to $104bn, and so NSW was downgraded only one notch to AA plus, while Victoria went down two notches to AA.

There are three big reasons why in 2020 it’s not that big a deal – and certainly very, very different to when Victoria lost its AAA rating as the ‘rust-bucket state’ in the depths of the recession of the early 1990s.

Back then, the ratings downgrade cost real and serious money: Victoria had to pay higher interest rates on its borrowings and rates were so much higher – into double-digits – anyway.

The downgrade helped elect Jeff Kennett premier. He sold off the state’s electricity system and paid down the debt, reclaiming the AAA in 1998.

Now, any increase would be all-but insignificant in cost. Last week state treasury head David Martine told a parliamentary inquiry that the loss of the AAA would increase the annual interest bill by between $2m and $10m.

That would be little more than a ‘rounding error’ on our interest bill this year of $2813m.

Now true, Martine was estimating on a single-notch downgrade, but the actual two-notch downgrade won’t make any significant difference.

First off, almost literally EVERYONE in the world is in the same situation – running up huge government debt because of their own lockdowns and recessions.

Downgrades hurt – like Victoria’s did in the 1990s – when you are on your own. Victoria still looks pretty-to-very good in those relative terms.

Second, interest rates are at all-but zero; and again low just about everywhere.

Third, trillions of dollars of loose money is sloshing around the world, looking for somewhere to invest – to get a return or just to be safe

The one big question coming out of this is whether Australia’s AAA is next.