A major global credit rating agency has put a dampener on the federal parliament's likely passing of a $130 billion stimulus package aimed at supporting the economy through the coronavirus pandemic.
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Standard & Poor's has lowered Australia's outlook from stable to negative as a result of the crisis, posing a one-in-three chance of the nation losing its prized top-tier, AAA rating in the next two years.
"The negative outlook reflects our view that Australia faces fiscal and economic risks that are tilted toward the downside," the agency said on Wednesday.
While it has affirmed the nation's AAA rating, it warned it could be cut in the next two years if the COVID-19 outbreak causes more economic damage than expected.
A credit rating downgrade would not only be a hit to confidence, it could result in higher borrowing costs when companies, banks and government entities seek funding abroad.
However, its credit rating competitor Moody's Investors Service says the government's latest stimulus package is unlikely to generate significant downward pressure on Australia's credit profile.
"The government has effectively reduced fiscal deficits alongside strong levels of economic growth over the last decade," Moody's vice president Martin Petch said.
But Institute of Public Affairs research fellow Cian Hussey, said the Morrison government should be "very concerned" about S&P's action.
"A deteriorating credit rating will make our record levels of debt more expensive, placing an even greater burden on Australian taxpayers," he warned.
"Before the crisis, the interest on federal government debt was costing around $16 billion each year. Over the next two to three years this will move up towards $30 billion a year, and even higher if the credit rating is downgraded."
RBC Capital Markets head of strategy Su-Lin Ong expects there could be a downgrade unless there is a "strong and synchronised global recovery".
"We are mindful of considerable uncertainty and would not expect any action from S&P prior to the delayed October 6 commonwealth budget where a better assessment of both the economy and fiscal trajectory can be made," she said.
The credit rating warning came a day after Reserve Bank governor Philip Lowe said he expected a very large economic contraction in the June quarter.
Dr Lowe also warned the unemployment rate will increase to its highest level for many years.
Finance Minister Mathias Cormann declined to put a figure on the expected drop in economic growth.
"We have deferred the timing of the budget because it is nigh impossible to make realistic and credible economic forecasts in this current environment," he told ABC radio.
ANZ senior economist Catherine Birch forecast the jobless rate peaking at 9.5 per cent in the June quarter, when other economists had predicted it hitting 17 per cent prior to the government launching its JobKeeper plan.
Even so, that would still be a 26-year high and compare with 5.1 per cent in February.
The JobKeeper package - the third and largest major stimulus measure that will pay claimants $1500 per fortnight - aims to keep workers on the books of businesses who would otherwise be closing down.
"This unprecedented level of support reflects the unprecedented moment we find ourselves in," Treasurer Josh Frydenberg said introducing the legislation to a special sitting of parliament.
Labor leader Anthony Albanese told parliament the opposition supported the economic measures but would keep the government accountable.
"We are headed for a $1 trillion debt. It is a bill that will saddle a generation," he said.
Earlier, Mr Frydenberg ruled out lifting the rate of GST to pay for the three stimulus packages and other assistance measures worth some $320 billion.
Australian Associated Press
