S&P Maintains Australia's AAA Credit Rating Due to 'Strong' Public Finances

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By Reissa Su | July 30, 2014 4:27 PM EST

Australia's AAA credit rating has been affirmed by Standard & Poor's due to the country's strong public finances, low debt and deficit. The credit rating agency appears more "relaxed" about the federal government's budget, according to reports.

REUTERS/William West/Pool
Australia's Treasurer Joe Hockey speaks during the B20 Summit in Sydney July 18, 2014. REUTERS/William West/Pool

S&P credit analyst Craig Michaels revealed that the agency's positive outlook was based on the "historically conservative" budgetary policies in Australia. S&P remains confident they will contribute to narrow the deficits and reduce government debt.

The credit rating agency expects compromises will be reached so the budget will pass in Parliament.

S&P has previously warned Australia its AAA credit rating may be reviewed unless "significant cuts" were made in the budget. This may have provided the Abbott government leverage to win support for its budget. A review may be required if the Australian government was unable to pass part of the $37 billion in savings the Coalition had promised, according to reports.

Australia's Labour has promised to block $18 billion in budget cuts and tax hikes, while Clive Palmer, leader of the Palmer United Party, has vowed to veto policies targeting Australia's deficit.

The Abbott government is expected to reduce healthcare costs after an audit in May has recommended sweeping changes to prevent what the government has described as a "fiscal crisis." In Australia, the federal government spends 16 percent on healthcare. Many healthcare companies depend on government spending in growing their business.

According to the Wall Street Journal, critics said the country's public debt and government deficit remained "modest" compared to the debt situation of Europe and the U.S. Australia's Coalition government may be slowing down an economy already when dealing with declining mining investments.

The possibility of a downgrade of Australia's credit rating will only increase the country's cost of borrowing and cause political damage. However, analysts said the risk of a downgrade will remain low if the country's budget deficit remains relatively small.  

Meanwhile, the latest ANZ-Roy Morgan consumer confidence index has been released with consumers appearing to have slowly accepted Treasurer Joe Hockey's budget. Consumer confidence has improved compared to the weeks following the budget's announcement.

ANZ bank chief economist Warren Hogan said the impact of the budget was only "temporary." He added that Australia's jobs market, rising share and house prices including a stable economy contribute to positive consumer behaviour towards spending. 

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(Photo: REUTERS/William West/Pool / )
Australia's Treasurer Joe Hockey speaks during the B20 Summit in Sydney July 18, 2014. REUTERS/William West/Pool
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