Business appears unfazed by the approaching budget, but consumers aren’t happy about what they are hearing and neither are economists.
New figures show business confidence rose in March as conditions jumped to their highest level in eight years, suggesting the economy remains in solid shape.
“What we are seeing is the Australian economy continue to make the positive and successful transition from the investment phase of the mining boom,” Treasurer Scott Morrison told reporters in Perth on Tuesday.
In contrast, consumers’ confidence fell for a fourth straight week and is now below its long-run average for the first time in almost two months.
ANZ head of Australian economics Felicity Emmett expects confidence is likely being weighed down by the discussion around tax and other policy reforms in the lead-up to the May 3 budget.
“This uncertainty is likely to intensify over the coming weeks and the government’s ability to deliver a clear and credible economic platform is likely to be a key driver of household confidence in the near term,” she said.
Economists see a building risk to Australia’s top-tier triple-A credit rating if Mr Morrison fails to deliver a budget that shows a significant improvement in the bottom line.
Market Economics managing director Stephen Koukoulas says while the budget hasn’t hit crisis levels yet, every year the pressure builds.
Global credit rating agencies don’t care if there are spending cuts or tax increases, but they do worry about the trajectory back to surplus, he said.
Mr Morrison pushed back the timing of a budget surplus by a further year to 2020/21 in December’s mid-year budget review.
Mr Koukoulas says there will be a trigger that becomes the straw that breaks the camel’s back.
“We’re not there but we are getting closer,” he told Sky News.
Two of the nation’s big four banks have also warned that rising government debt risks testing the patience of credit agencies.
National Australia Bank’s global head of policy research, Peter Jolly, has said Commonwealth debt was now “pushing against” the AAA boundary.
Michael Blythe, chief economist at Commonwealth Bank of Australia, believes there’s a limit to the patience of agencies, as they watch a drawn-out return to budget surplus.
Australia has the highest rating with the world’s three main rating agencies – Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.
Shadow treasurer Chris Bowen told reporters in Sydney it is up to Mr Morrison and Prime Minister Malcolm Turnbull to protect these ratings and warned there would be flow-on effects to the cost of borrowing for the government and private sector from a downgrade.
“It would be quite serious to confidence in the economy,” he said.
But Mr Morrison insists the government’s responsible budget management will protect Australia’s AAA rating.
“Two of the three ratings agencies have confirmed our AAA rating only in the past few weeks,” a spokeswoman for Mr Morrison told AAP.
The third, Fitch Ratings, warned against a sustained widening of the fiscal deficit without remedial policy actions, as it would lead to a continued upward trajectory of debt.
It was Labor’s irresponsible spending that has left Australia with a structural budget problem and its tax and spend policies will exacerbate the debt and deficit challenges, the spokeswoman said.