Australia in firing line for AAA rating downgrade

Australia is likely to loose its coveted AAA sovereign credit rating after global ratings agency Standard & Poor's revised its outlook to negative on the nation's fiscal vulnerabilities following the still undecided national election.

Australia has joined a long list of developed countries undergoing political uncertainty as the rise of the disenfranchised populace gains traction, where a likely uncooperative upper house Senate will make it much harder for any Australian government to implement much needed fiscal reform.

While Standard and Poor's on Thursday affirmed Australia's AAA credit rating, the agency said it could be downgraded within the next few years.

"The negative outlook on Australia reflects our view that without the implementation of more forceful fiscal policy decisions, material government budget deficits may persist for several years with little improvement," S&P said in statement on Thursday.

"Ongoing budget deficits may become incompatible with Australia's high level of external indebtedness and therefore consistent with a AAA rating."

The warning is a blow to the incumbent government who is within striking distance of being returned to power following the national election on Saturday after campaigning on their economic credentials.

"This is a reminder that the commitment to budget repair, to reducing the deficit...to managing our public finances responsibly must be a very high priority," Australian Prime Minister Malcolm Turnbull told reporters on Brisbane.

The ratings houses have been consistently warning the Australian government that halting ballooning government spending was not enough, arguing revenue raising measures were also needed to curb growing debt.

Both major political parties however pork-barrelled their way around Australia during the marathon eight-week campaign announcing new spending and tax reduction policies, headlined by the incumbent's 50 billion Australian dollar corporate tax cut - to be gradually introduced over 10-years - that was likened to former U.S. President Ronald Reagan's principle of "trickle down economics".

While loosing the AAA rating might not be as dire for sovereign debt as Australia is only one of eight to hold the coveted rating, it will increase bank financing costs and debt consumer and business sentiment.

"The obvious concern is with such a high level of foreign ownership of Aussie debt (60.4 percent as of March 2016) that we may see forced sellers, which could cause sizeable capital outflows of Australia," IG chief market strategist Chris Weston said in a note.

National Australia Bank chief economist Ivan Colhoun however said managing a hostile political environment might become easier with a negative outlook.

"No party will like to be seen as responsible for causing a credit rating downgrade," Colhoun said.

S&P said they "will continue to monitor, over the next six to twelve months, the success or otherwise of the new government's ability to pass revenue and expenditure measures through both houses of parliament."

The global ratings agency followed up their sovereign action by putting all the major Australian banks - ANZ, the Commonwealth Bank of Australia, the National Australia Bank and Westpac - and the state economies with an AAA rating on negative outlook, including powerhouse New South Wales (NSW) state.

Though NSW state on track to hold no debt by the end of the financial year due to a successful asset-recycling program, the current critical Public-Private Partnership (PPP) infrastructure programs are reliant on competitive funding sources.

"The Senate needs to understand...this is not about games or political point scoring," NSW Premier Mike Baird told reporters on Monday when Fitch and Moody's warned of the continued fiscal impasse.

"It's critical for delivering the services and infrastructure that every city and state needs."

NSW's Minister for Transport and Infrastructure Andrew Constance is currently on a trade mission to Asia meeting potential investors while viewing the latest transport technology. Enditem