Midyear budget review: Australia likely to keep Triple-A credit rating

SCOTT Morrison has done enough to keep our triple-A credit rating. But that won’t necessarily save you from small increases in your home loan rate, writes Terry McCrann.

SCOTT Morrison has done enough to keep Australia’s triple-A credit rating.

That won’t, though, necessarily save you from — small — increases in your mortgage interest rate.

Treasurer Morrison and finance minister Mathias Corrman haven’t produced a “beautiful” set of budget numbers; but they have managed to produce an — ever-so marginally — better set than those in the May budget.

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More importantly, they should be credible enough to satisfy the credit rating agencies.

First, that they are believable; and secondly, so that the agencies won’t reach for the downgrade lever.

All three major ratings agencies have said this afternoon they are keeping Australia on a triple-A rating for now.

The great risk for you was not so much that if we lost our triple-A rating that the cost of GOVERNMENT borrowing would go up; but that the cost of bank borrowing on the international capital market would as banks were also downgraded.

The government can reasonably claim the budget is heading in the right direction. Picture: AAP

And that would have fed directly into higher mortgage interest rates.

That though might prove only a small blessing, because US interest rates are going up anyway — the Fed, their version of our Reserve Bank — raised its official rate last week for the first time in a year, and only the second time in eight years.

More increases are going to follow in the new year; and as Wall St remains the centre of the financial universe, ALL other rates will inevitably follow and especially the cost for our banks.

In short, while we might have been saved from a “downgrade rate hike”, we probably won’t be saved from a “Fed-driven rate hike”.

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The forecasts used to construct an outlook for both the economy and the budget are credible.

Of course, what actually happens will be very different — it always is, and not just when we get hit by a left-field event like the GFC.

On the one hand the cuts the government are trumpeting are very minor and even pathetic. It is still essentially riding YOUR money, through tax increases, to close the budget deficit.

And we remain vulnerable to it all blowing up if we get another serious economic downturn.

On the other hand the government can reasonably claim the budget is heading in the right direction.

And you can take comfort in the fact that Morrison and Cormann have done enough to keep the rating agency wolf from the door.

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Originally published as Midyear budget review: Australia likely to keep Triple-A credit rating