Blackrock gives thumbs up to local economy
MONTHS after Labor's mining tax, its carbon tax and its fourth successive budget deficit, Australia has been rewarded with an upgrade by the world's biggest fund manager.
BlackRock is one of the world's most important buyers of governments bonds. It says Australia's carbon tax and the mining tax have had at most a "marginal" impact on perceptions of country risk. More important has been the government's success in shrinking its budget deficit.
Its new sovereign risk update ranks Australian government bonds as the world's seventh least risky, up from 10th three months ago. No other nation has jumped three places in the latest survey.
The finding is at odds with a claim by the Coalition's Treasury spokesman, Joe Hockey, in August that Labor was "adversely impacting Australia's sovereign risk profile".
BlackRock's Australian head of fixed income, Steve Miller, said Australia's position was "exceedingly strong" and strengthening.
"The plain fact is, compared to the rest of the world - and this is what we are doing - Australia's public debt position is very, very strong. Whether you are looking at budget balance or public debt to gross domestic product, whichever way we look at it, Australia comes out exceedingly strong."
The new BlackRock survey rates the governments of Norway, Singapore, Switzerland, Sweden, Finland, Canada, Australia, Taiwan, Germany and Chile as the 10 safest to lend to. The US is in the next 10 along with New Zealand and China.
At the bottom in positions 40 to 48 are Spain, Argentina, Ireland, Italy, Venezuela, Egypt, Portugal and Greece. Japan and South Africa each slid two places to 35 and 36.
"All other things being equal, this and the things that brought it about will put further downward pressure on bond yields," Mr Miller said, referring to the rate Australia needs to pay to borrow money. It would also make it easier for Australian state governments to borrow money.
The BlackRock calculation accords with those of the world's top three credit ratings agencies, which have given Australia their highest AAA rating. But it is a more recent calculation and the improvement reflects recent developments. "The impact of the mining tax and the carbon tax would be marginal," Mr Miller said. "We look at ability to pay and willingness to pay. Australia's budget position has improved. It has never defaulted. It has low debt by international standards."
The calculations were finalised before the Treasurer, Wayne Swan, disowned his promise of a budget surplus on December 20. Mr Miller said the new position made little difference. "I don't think bond markets would be that rankled by the difference between a surplus of 0.1 per cent of GDP or a deficit of 0.1 per cent," he said. "I don't it would have a material impact on Australia's ranking."
The acting Treasurer, Penny Wong, welcomed the report as an "endorsement of Australia's strong public finances in the face of global headwinds". Mr Hockey's office said the reality remained that business leaders had "expressed serious concern about the chopping and changing of government policy, the uncertainty of the taxation environment and the toxic relationship Canberra has with many members of the business community".