Australia's AAA credit rating at risk without tax hikes, warns Moody's

Global ratings agency Moody's Investor Services has weighed into Australian political debate, warning the nation's coveted AAA credit rating may be downgraded unless tax hikes are figured in upcoming budgets.

As Australia enters the crescendo of the current election cycle, local economists have been warning political leaders to show fiscal restraint in their policy initiatives or risk government debt ballooning to levels that push the AAA rating boundaries.

However, Moody's on Thursday warned restraint will not be enough, challenging Australian Treasurer Scott Morrison's insistence the government will not increase revenue, but curb spending to lower the budget deficit.

"Given previous difficulties in reducing welfare benefits, actual spending cuts may be modest," Moody's senior vice president Marie Diron said in a note Thursday.

"Without (revenue raising) measures, limited spending are unlikely to meaningfully advance the government's aim of balanced finances by the fiscal year ending June 2021 and government debt will likely climb, a credit negative for Australia," Diron said.

Regardless of Australia's stronger budget standing relative to its AAA-rated peers, Moody's noted there has been a prolonged and marked increase in government debt over the past decade despite successive governments having a consensus on fiscal consolidation.

Australia's debt has risen 11.6 percent to 35.1 percent of GDP in the 10-years to 2015, which Moody's forecasts increasing to 38 percent of GDP by fiscal 2018.

Though that forecast sits in the median - 40 percent of GDP - of other AAA-rated economies, further debt growth will put pressure for a downgrade.

In a speech to the Business Council of Australia dinner in Sydney on Wednesday, Morrison said his first budget, delivered on May 3, will aim to drive jobs, growth and have the government "live within its means", but not raise taxes. Endit