Moodys downgrades Victoria’s credit rating

Another agency will remove Victoria’s coveted AAA status because of the debt burden brought on response to the coronavirus pandemic.

Moodys says the state government faced major deficits while it responded to the economic fallout of coronavirus and continued major spending initiatives.

Victoria has been stripped of its AAA credit rating by another top agency, amid warnings of a negative financial outlook.

Moody’s on Tuesday confirmed it would follow Standard and Poor’s move last year to downgrade the status from AAA after flagging the rating was under review.

In making its decision, Moody’s cited the debt burden brought on in response to the coronavirus pandemic after the Andrews government launched a massive spending blitz to tackle economic aftershocks. This will include a tripling of the debt bill to $154.8 billion by 2023-24.

Moody’s vice president John Manning said the downgrade decision came from a “marked erosion” in the state’s finances.

He said the government faced major deficits while it responded to the economic fallout of coronavirus and continued major spending initiatives.

“As a result, the state’s debt burden will rise sharply and remain elevated for the remainder of the decade,” he said.

The agency flagged the government’s priority was short to medium term job creation, which meant significant attempts to pay down debt were unlikely until eight years from now.

It also gave Victoria a negative outlook, meaning further downgrades were possible.

“Higher operating expenses and lower revenues, combined with large capital spending plans, will drive the state’s debt burden significantly and persistently higher in the next four to five years,” Mr Manning said.

“Over time, the rapid and prolonged growth in debt will constrain the state’s capacity to respond to future shocks.”

But Treasurer Tim Pallas said he made no apologies for the borrowing that prompted the rating change because it was needed to protect household budgets.

Mr Pallas said Victoria was better placed than much of the world to recover economically from the pandemic.

“We — like the federal government and other states and territories across Australia — are borrowing to drive investment, create jobs and revive our economy,” he said.

“And we’re already seeing the benefits, with Victoria creating more jobs in January than anywhere else in the nation. We make no apologies for using our balance sheet to protect household budgets and support Victorians.”

Opposition spokeswoman Louise Staley said the announcement marked a “sad day for Victorians”.