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Credit rating downgrade looms after MYEFO

19 December 2016

Australia will lose its prized AAA credit rating following the release of the Mid-Year Economic and Fiscal Outlook (MYEFO), according to a QUT economist.

But Dr David Willis, from QUT Business School, said rather than dwelling on the downgrade when it arrives, the Federal Government should focus on economic stimulus by investing in infrastructure projects and creating jobs.

Released today (MONDAY DECEMBER 19), MYEFO revealed budget deficits will increase to $94.9 billion over the next four years. The government predicts a return to surplus in 2020-21.

“The Mid-Year Economic and Fiscal Outlook evidences low growth, low revenue and high debt and deficit,” Dr Willis said.

“With the deficit in 2019-20 predicted to blow out to $10 billion, it is a distant and unrealistic forecast to expect a return to surplus the following year.

“Coupled with the economy shrinking 0.5 per cent in the last quarter, it is now assured Australia’s AAA rating will be downgraded to AA+.”

However Dr Willis said there were more important economic issues for the government than the coveted AAA rating and a downgrade could even have a “silver lining”.

“The AAA rating is more of a political issue than a real economic one,” he said.

“The United States, for example, is the world’s biggest economy but has a rating of AA+.

“When the downgrade comes it should have a silver lining, as once lost the government is then free to borrow more to spend on infrastructure projects. That would add to GDP and revenue from wages and profits without the risk of a further downgrade. 

“Australia needs some government-led stimulus and the country’s credit rating should not distract from a plan for economic expansion.”

Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
After hours, Rose Trapnell, 0407 585 901

Dr David Willis says Australia is set to lose its AAA credit rating.

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