WA credit rating outlook downgraded

The outlook on Western Australia’s credit rating has been downgraded from stable to negative, with the state warned it will need to tighten its belt even harder.


Moody’s Investor Services says the revision reflects the ongoing deterioration in WA’s balance sheet.

With a near halving of iron ore prices over the past 12 months and a lower share of the GST carve-up, the state recorded its first budget deficit in 15 years last month.

The deficit is expected to more than double next financial year to a record high of $2.7 billion while debt is forecast to mount to almost $31 billion.

Not only are WA’s ailing finances exacerbated by a lack of financial cushions against adverse commodity prices and exchange rate movements, the state government is also not doing enough to stop WA’s slide into the red, Moody’s says.

Moody’s said it was positive the state had constrained the rapid growth in public sector employee costs, increased land tax, changed the payroll tax threshold and planned a series of asset sales.

But the ratings agency believes the WA government will be hard pressed to achieve much lower level spending forecasts unless it strengthens its commitment to budget improvements.

To achieve its projections, the state will have to slash its rate of spending to as low as 1.9 per cent in 2017/18, compared with 6.2 per cent over the past four years.

Public sector employee cost rises will have to be very low while the growth rate of spending on healthcare and other social services requires a concerted reduction, which could prove difficult as the population continues to rise, Moody’s said.

“The question is how much improvement there will be?” lead analyst Debra Roane told AAP.

“If there’s no improvement, then we would be very concerned about the rating levels.”

Opposition leader Mark McGowan said the outlook downgrade was testament to the Barnett government’s poor financial management and he had no confidence it would turn the state budget around.

“This should never have happened,” Mr McGowan told reporters.

“Their management of the state is unravelling.”

WA Treasurer Mike Nahan said the state still enjoyed a strong Aa1 credit rating with Moody’s and remained a safe place to invest.

“The economy is still very strong and a record capital works program has been crucial to employment growth with the state’s labour market continuing to outperform the other Australian states,” Dr Nahan said.

He said the WA government didn’t expect a significant increase in the cost of borrowing as the change in credit rating outlook had been factored in when ratings agency Standard & Poor’s placed its AA+ credit rating for WA on CreditWatch in April.


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