Australia’s AAA stable credit rating will survive the first budget/financial statement from the Albanese ALP government if the immediate reaction from ratings group S&P Global is any indication.
And the boost to business in coming years will be much greater than many investors may have thought before the budget with tens of billions of dollars to flow to the building, finance, renewables and resources sectors over time.
In a quick commentary after Treasurer Jim Chalmers’ speech on Tuesday night, S&P said “The budget won’t greatly add to inflationary pressures while “High commodity prices (are) delivering (a) large windfall in Australia budget.”
The ratings group said the “Improved fiscal outcomes underpins (the) sovereign rating for Australia” which is the highest – AAA (stable), one of only 8 countries worldwide with the top credit rating.
“We believe the budget won’t greatly add to inflationary pressures,” S&P director Anthony Walker said.
“Likewise, we believe stage three income tax cuts (legislated to come into force in 2024) will not add to inflationary pressure. They will commence while the economy will likely be slowing,” Mr Walker said.
But as usual the group did warn that a “Sharp correction in commodity prices could reverse recent gains in Australia’s external accounts and, along with rising interest costs, could present downside to the AAA rating.”
Rising debt levels and interest payments also did not present a risk to the AAA rating, as the nation’s net debt of 30% to 35% of GDP “remains comparable to similarly rated peers”.
S&P said the correction in house prices – of about 6.5 per cent since early May – should alleviate risks of a possible sharp fall, and consequent blow to the economy and financial system.
The market reax was muted with the Aussie dollar holding above 63 US cents and then rising towards 64 US cents in US trading as investors offshore fretted about more serious issues such as the size of US Fed’s next rate rise, events in China and the continuing weakness in share prices of key tech stocks and the reports from Alphabet and Microsoft.
Wall Street though overcame the fretting and ended with modest gains with US bond yields down to 4.07% in a surprise easing.
Overnight trading in the ASX futures market chalked up a 56-point gain for the restart on Wednesday which was another big positive for the budget/financial statement.
The budget contains nearly $25 billion in climate-related spending out until 2030, including $20 billion fund for energy transmission to drive investment in renewable energy which is designed to upgrade the electricity grid to ensure more renewables can be fed in.
Today analysts will be releasing lists of companies to get a boost from the budget – the million homes ambition will see builders and building material groups get a boost – Adbri, Boral, Seven Group Holdings (which controls Boral and equipment hire companies); BlueScope Steel, Wagners, CSR, Brickworks, Reece, Reliance Worldwide and the banks (because finance will have to be provided for the million homes to be built and work in progress financed.
Then there’s the $20 billion of possible spending on renewables that will boost a long and growing list of companies across the spectrum. BHP, OZ Minerals, Rio Tinto, Aussie Broadband, Telstra, Optus, Tesla, Novonix, Syrah Resources, lithium companies like MinRes, IGO, Pilbara Minerals, Allkem and Liontown.
Ampol and Viva Energy have plans for charging stations at their service stations and convenience stores
The closing of a small tax loophole used by big companies to stop the ‘streaming’ of franked dividends, will raise $550 million, upset some noisy investors but the answer to that is for companies to pay higher franked dividends in the first place and stop giving a bigger advantage to big investors like super funds.
The few listed car companies will dive into EV retailing in a serious way now that there is a tax advantage for them. Think Eagers and Peter Warren for example.
About $275 million will be spent to encourage the use of electric vehicles with more charging stations and support for heavy industry to adopt hydrogen trucks. A $345 million cut to fringe benefits tax will save employers who provide EVs $9000 per year, or individuals $4700 per year.
