Moody’s Keeps Australia’s AAA Credit Rating

Even if Australia's federal budget registered only a small surplus, ratings agency Moody's said it would still keep Canberra's credit rating to the valued AAA.

Moody's analyst Steven Hess told AAP that the budget revealed on Tuesday by Treasurer Wayne Swan was not a surprise and the Gillard government had made it known beforehand that it would deliver only a small surplus.

"Even though the economic case is that (a surplus) is not absolutely necessary in this year, it is important in the context of what is happening in sovereign debt globally," AAP quoted Mr Hess.

"The commitment to returning to surplus is important for Australia's credibility in accessing global capital markets," stressed Mr Hess, who said the budget symbolised Australia's financial discipline.

Australia is one of only eight countries globally that enjoys a triple A rating and stable outlook from the three major ratings agencies. Even the U.S. was recently downgraded to double AA following the delay in increasing the country's debt limit.

While the Gillard government has been criticised for using accounting tricks to come up with a $1.5-billion budget surplus as it had promised, experts pointed out that it is the first time in 40 years that the dollar amount of expenditure was reduced and only the fifth time expenditures in real terms was cut. The 4.3 per cent reduction in real expenditure is also considered the largest in the past four decades.

The Drum columnist Greg Jericho pointed out that deficits and surpluses become politically important only when juxtaposed against unemployment data.

"As this budget cuts expenditure it is contractionary - but not in a manner which suggests it will stifle demand in the economy. More it comes from not spending a few things it didn't need to and through taking away benefits to those on higher incomes, and not spending money on things it said it would but which it hadn't actually started doing," Mr Jericho wrote.

However, the columnist said that if Australia's unemployment rate would go up to 5.5 per cent from the current 5.2 per cent, the positive impact of the Gillard government in delivering a prudent budget would be forgotten.