International ratings agency Fitch Ratings has affirmed its credit rating of South Australia at AA, after cutting it from AA+ a year ago.
The key agency’s annual assessment of South Australia’s finances repeated its concerns with the state’s increasing debt position and pushed out its expected recovery by another year.
Last year’s downgrade rejected the State Government’s forecast timetable of a Budget surplus – a position Fitch repeated again today.
“Although SA is beginning to take measures to rebuild its financial position, the state’s fiscal and debt positions have deteriorated over the past five years and Fitch does not expect significant recovery for at least three years,” the New York-based agency said in a statement overnight.
“The Stable Outlook reflects Fitch’s base case scenario of an improving, yet still-weak operating and current balance, driven by revenue growth and expenditure restraint.
“The base case includes an increase in debt to AUD8.7bn in FY16 from AUD6.7bn in FY13. Finally, the Outlook factors in deficits in the next three financial years and a return to surplus by FY17.”
Fitch said the state’s revenue stream was in a slow growth period, while expenditure still outstrips it.
While SA’s share of the GST pool was forecast to decrease, the actual amount of money received was still increasing, it said.
“The GST revenue grants received by SA are expected to increase by just under $340 million (7 per cent) between the estimated actuals for FY14 and FY15 as a result of growth in the national GST pool.
“Modest growth in operating revenue will enable the state to return to a surplus before debt variation and reduce debt from FY17 onwards.”
Fitch’s assessment contradicts the estimates made by Treasurer Tom Koutsantonis in his 2014-15 Budget.
“We aim to achieve strong surpluses, with a forecast surplus of $406 million in 2015-16, followed by $776 million in 2016-17 and $883 million in 2017-18,” the Treasurer said.
Fitch points out that while revenue is increasing, expenditure remains a problem for the public sector finances.
“Operating revenue rose by a subdued 2.8 per cent during FY13, which was offset by a 3.7 per cent rise in operating expenditure, resulting in the operating margin deteriorating to negative 1.4 per cent.
“The slow revenue growth is due to the weakness of the national GST pool and slow property market and domestic consumption.
“Operating revenue growth is expected to improve across the forecast to FY18, averaging growth of 5 per cent as a result of increases in the national GST pool and state-based taxes.”
Fitch estimates SA’s average capital expenditure will fall to $1.4 billion in FY18 from their historically high levels, averaging $2.1 billion over FY14-FY17.
Fitch said it considers this to be more financially sustainable over the long term, when combined with the improved operating margins as forecast.
