Daily Management Review

Australia could lose AAA rating: Joe Hockey


Australian treasurer Joe Hockey has announced that the country could lose its AAA credit rating, which would amp up interest rates for households, unless the federal budget is returned to surplus.
Hockey would be handing down the second budget under his helm in two weeks and took the opportunity to criticize Obama administration’s efforts to reach into Australia’s tax base by opposing the tax avoidance case on multinational companies.

Hockey agreed that Australia’s budget was “certainly unsustainable” and a credit downgrade was a real risk. “If we don’t get back to surplus, if we don’t get back to the point where Australian government is living within its means, then there is a risk to our credit rating, and it does flow through to the banks in the form of higher costs and inevitably higher interest rates for every day Australians,” he told to 891 ABC Adelaide Breakfast.

Deutsche Bank earlier warned that Australia would post 15 years of straight deficits. “The challenge in the budget over the medium term is not revenue and tax; the challenge is getting expenditure down, and the only way we can get expenditure down is if we get help from the Labor Party because 86 per cent of all government spending is tied up in legislation,” he noted.

Australia meanwhile will not cut any more of its international aid budget, though it would not require senate approval.

Earlier, the US Treasury’s top international tax official, Robert Stack, has cautioned against Australia forming an alliance with Britain to target US-headquartered digital companies with a tax aimed taking money from the US base. “We understand that governments are under enormous pressure to raise revenue and it must be tempting to target non-residents,” Mr Stack told The Australian Financial Review. Hockey also emphasized that the companies must pay taxes for their money made in Australia. He also said revenue from the new “integrity measures” targeting multinational companies would not be banked in the budget as that would risk sending “alarm bells” to the target company about the scale of the investigations taken up by the tax office.