Moody’s downgrade of Western Australia’s credit rating on Monday cited a number of factors, amongst them the agency’s concerns about future public sector employee costs.
The credit rating agency’s rationale said the downgrade reflected the ongoing deterioration in the state’s balance and debt level and increasing risk that the debt burden will be higher than the government’s own published projections in the 2015-16 mid-year report, published in December.
Unless public sector employee costs keep to very low increases, the agency warns that WA Treasury’s projections won’t mean much. The WA credit rating rationale states:
“Moody’s believes that unless the government strengthens its commitment to budget improvements there is a risk that deficits forecast in the mid-year report will be exceeded.
“This is because the state’s assumed average rate of spending growth of 2.7% annually over the next four years — down from 5.7% rate registered on average over the last four years — will require very low increases in public-sector employee costs and a concerted reduction in the growth rate of spending on healthcare and other social services, which could prove difficult. In particular, a reform of the healthcare system is proceeding at a more gradual pace than anticipated.”
However, the agency did give the state a stable outlook, on the basis that the Commonwealth would step in if the budget situation deteriorated further. Additionally, the state would likely take more steps to cuts public sector wages:
“Moreover, we believe that in the event of further significant deterioration in the state’s fiscal performance the state would fortify steps to constrain spending as indicated by budget measures implemented in recent years to slow the growth in public sector employee costs.”