Victoria keeps its AA credit rating despite warnings over project costs
S&P Global said on Wednesday that it had reaffirmed Victoria's AA rating as it expected the state's infrastructure spending to peak this financial year and large deficits to narrow over the next two to three years.
S&P's outlook remained stable, meaning it believes the rating is more likely to stay at this position than to worsen.
'We expect Victoria to realise small operating surpluses over the next three years,' it said in a statement.
The ratings agency said the Allan government was taking steps to saves costs and would benefit from increased GST revenue and tax receipts. S&P also said the state would receive extra funding through its rebranded fire services levy and expanded congestion charge, which was 'supporting an improving operating position from a very weak base'.
'We expect the government to show fiscal restraint ahead of the 2026 election, which should keep its operating balance in surplus,' it said. 'Victoria's economy is wealthy, well-diversified, and fundamentally sound.'
Net debt in Victoria is forecast to hit $194 billion in four years' time.
S&P said Victoria's commitment to control costs and slow debt growth was important to rebuild the financial protections that had been lost during the COVID-19 pandemic. But it noted that doing this had previously been difficult for the government.
'The state tends to spend all unexpected revenue gains that it receives and has struggled to implement previous savings targets including workforce reductions,' the agency said. 'We believe strong governance and the quality of Victoria's major investment decisions are important for the government's fiscal credentials and our credit rating on the state.'
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While tariffs have been in place for months and raised tens of billions of additional dollars for US government coffers, the new tariffs, which go into effect in a week, represent the first time since Trump came to power that there has been the semblance of certainty over what the rates will be – at least for now. Still, the US economy seems to be more robust than the doomsday predictions considered. So, do the world's economists owe Trump an apology? Maurice Obstfeld, of the Peterson Institute for International Economics, says it is too soon to decide. 'These behavioural shifts have made GDP data more volatile than usual,' he says. 'Let's wait for the tariffs to settle down at new, predictable levels and see what happens before we shoot the economists.' Louise Sheiner, an economist at the Brookings Institution, espoused a similar view to The New York Times: 'We're going to look back and either say, 'Wow, the economy was super resilient and these things didn't matter as much as we thought they would', or we're going to say, 'Yeah, you could kind of feel it was weakening'.' Justin Wolfers, an Australian economics professor at the University of Michigan, and a regular critic of Trump's economic agenda, says there is still a decent chance of the US economy heading south later this year. 'When I was asked in the first half of the year for a forecast of the chances of a recession, I was careful to give a conditional forecast: if they go for the 'Full Trump', then 75 per cent, and if they drop their nonsense, then 25 per cent,' he says. Loading 'As it happened, he started with the Full Trump, then TACO'd. So perhaps the correct probability is somewhere between 25 and 75 per cent, and probably something like 40 per cent. That still seems right to me.' The term TACO stands for Trump Always Chickens Out – a popular critique of the president's tendency to make scary announcements, before backtracking or reverting to the norm. 'The idea that a single quarterly reading on a single measure says anything about [the economy being a] miracle or mirage is silly on its face,' Wolfers says. 'The economy isn't as bad as folks forecast, but neither was the actual policy that the White House was telling us we should expect.' In moments of candour, the Trump administration acknowledges American consumers might pay higher prices for some goods, but it is convinced economic growth will compensate. Hassett said as much this week, noting real wages had grown, which 'means people have more money in their pockets than the price increases that they've seen'. Board appointees break ranks Trump is also desperate to stimulate economic growth with lower interest rates, hence his constant badgering of Jerome 'Too Late' Powell to cut the rate. Despite Trump insisting 'there is no inflation' (it is 2.7 per cent), the majority of the bank's board wants to see more data before it makes a move – although the market expects cuts later this year. Loading But for the first time in three decades, two governors dissented from Wednesday's decision. Christopher Waller and Michelle Bowman – both Trump appointees to the board from his first term – voted to cut rates by 0.25 points. Both are considered candidates to replace Powell when his term expires next year. [In his dissenting reasons, published Friday in the US, Waller said tariffs only caused a one-off increase in prices, which the bank should 'look through', while soft growth meant monetary policy should be 'close to neutral'. The 'wait and see' approach was overly cautious, he said. Bowman said inflation had fallen - excluding tariff-related increases - and noted the slower growth in private domestic final purchases, a leading indicator of consumer spending.] Arthur Sinodinos, a former Australian ambassador to the US who now works at the Asia Group, says now that Australia's tariff rate has been confirmed at 10 per cent, its main worries will be what impact the tariff regime has on global economic conditions, as well as the US economy.
