Budget pressures to remain, says Moody's

·2-min read

Budget pressures are likely to remain in the face of uneven vaccination rates across Australia and the hesitancy of some states to reopen, Moody's Investors Service warns.

The global credit rating agency said Australia's robust economy, and accommodative monetary policy, support states' high levels of public spending to sustain growth amid a prolonged coronavirus outbreak.

"Still, a full recovery remains vulnerable to uneven vaccination rates and inconsistent execution of the transition to Australia's national COVID-19 response agreements," Moody's vice president and senior credit officer John Manning says.

Moody's expects a strong economic rebound upon relaxation of virus restrictions, supported by commonwealth policy, elevated household saving rates, high levels of employment and debt affordability.

In a new report, Moody's says economic growth generally remains underpinned by public spending on infrastructure, strong exports growth and a resilient housing sector.

"Strong fiscal resolve to contain - and over time reverse - rising debt burdens will outweigh risks from temporary revenue shocks," it says.

Australia is rated triple-A by Moody's with a stable outlook.

The report came the day after the federal government announced the final budget outcome for 2020/21 was a record deficit of $134.2 billion, although slightly smaller than the $161 billion deficit forecast in May.

At the time of the May budget, the deficit for 2021/22 was expected to be $106.6 billion.

However, Treasurer Josh Frydenberg said the government has already doled out $13 billion in COVID disaster and business support payments, and by the time these programs ended the bill would be more than $20 billion.

On top of that, economic activity has been reduced by about $2 billion per week from the lockdowns in NSW and Victoria.

"It is a significant hit to the budget," Mr Frydenberg said on Thursday.

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