S&P Global Ratings has revised the outlook on the ACT’s credit rating from stable to negative, primarily due to weaker than expected fiscal performance and rising debt levels, but affirmed ‘AA+/A-1+’ long- and short-term issuer credit ratings.

The ACT’s operating position is expected to be weaker than all Australian states and territories, and all ‘AA+’ rated local governments globally.

The ACT’s credit rating was downgraded from AAA to AA+ last year; S&P warns that another downgrade could be possible if the ACT’s fiscal outcomes do not meet expectations over the next two years.

However, the rating outlook could be upgraded to stable if fiscal outcomes strengthen.

The ACT is expected to run its fourth consecutive cash operating deficit in fiscal 2025 (year ending 30 June): 1.4 per cent of operating revenues, narrower than the 2.4 deficit in fiscal 2024.

This deficit is driven by increased staff wages, interest costs, more spending on health services, and rising capital expenditure, which are expected to push debt levels higher than anticipated. Lower than expected receipts from GST grants and payroll tax have further delayed the ACT’s economic recovery.

Debt as a proportion of revenues will double between fiscal years 2019 and 2027, largely due to the ACT’s infrastructure investment program. Total tax-supported debt will increase from 147 per cent in fiscal 2023 to 179 per cent in fiscal 2027.

Nevertheless, S&P states that the ACT’s financial management is “strong”, while very high-income economy, and exceptional liquidity ($2.8 billion in cash) underpin the ‘AA+’ ratings.

The report acknowledges that the ACT’s infrastructure investments are expected to support growth prospects over the long-term, while the 20-year tax reform program, aimed at replacing stamp tax with a broad-based land tax, may mitigate budgetary volatility.

S&P’s report follows another critical economic evaluation, Pegasus Economy’s review of the budget, which warned that the ACT’s financial position was weakening over time, with increasing net debt and financial liabilities, despite a forecasted return to surplus by 2026–27.

ACT Government response

Chief Minister Andrew Barr, who is also the treasurer, said the ACT Government welcomed the retention of the Territory’s AA+ credit rating, and acknowledged the importance of sticking to its budgeted path of fiscal recovery.

The 2024–25 Budget focused on investments in health, education, cost-of-living support, and infrastructure, and would increase the net operating cash position over the four years to 2027-28, Mr Barr said.

Mr Barr acknowledged that the Budget was tight, due to economic conditions, infrastructure and labour costs, and cost-of-living support. 

The S&P update showed it would be fiscally irresponsible to add any major infrastructure projects to the $8.1 billion pipeline, Mr Barr said. Therefore, the government would not proceed with a city stadium, but instead focus on the less expensive Bruce project. Major project priorities include the new CIT at Woden, Light Rail Stage 2A, the Northside Hospital, and the Canberra Lyric Theatre.

Rising cost-of-living pressures affect the community, and more immediate paths to improve the fiscal position – cutting or reducing Government services, cutting public service jobs, raising taxes and charges, or not increasing wages – “would do more harm than good in the long-term”, leading to a weaker local economy, and hurting local businesses and families, Mr Barr said. 

The Chief Minister challenged other parties to explain how they would achieve their promises within economic and fiscal constraints.

“In order to maintain the fiscal recovery trajectory set out in the ACT Budget, any significant new recurrent spending will need to be offset against existing budget expenditure growth provisions, new revenue and reprioritising existing spending,” Mr Barr said. 

Policies such as the ACT Greens’ accelerated delivery of light rail, the Canberra Liberals’ proposal of a city stadium, $10 billion public housing spends, and tax cuts “are either unachievable, or will have a significant impact on the ACT Budget over the next decade,” Mr Barr said.

Canberra Liberals

Opposition leader and shadow treasurer Elizabeth Lee claimed the Chief Minister’s financial mismanagement was responsible for the ACT’s deteriorating credit rating and debt situation.

“Andrew Barr has botched yet another Budget,” Ms Lee said. “Andrew Barr’s debt is out of control, and the negative outlook means another downgrade is virtually inevitable.”

Ms Lee accused the government of failing to deliver promised cost-of-living relief in the Budget, and of wasting hundreds of millions of taxpayer dollars, including on a $76 million failed HR system, dodgy CIT contracts [$8.8 million], and cost blowouts on delayed projects (nearly $200 million on the Canberra Hospital expansion project).

“After 13 years as Treasurer, responsibility for the ACT’s parlous financial position rests exclusively with Andrew Barr,” Ms Lee said.

“Good governments manage the economy responsibly and invest in projects that bring the most social, cultural and economic benefit to the ACT, and that good management leads to benefits for all the community.”