Mr BAYLEY – In the conversation we just had about servicing debt, you identified the challenge of predicting it going forward, and there being certain uncertainties. I completely accept that. One of those is clearly a credit rating. Both the PEFO and this budget identify the risks to the Tasmanian budget associated with a credit rating downgrade. Of course, in November, both S&P and Moody’s put us on a negative watch, so we are on notice.
In relation to the calculations you have provided of up to $32 million provided to service the debt, is that based on our credit rating staying stable, as is at the moment? How is Treasury treating that in terms of projections going forward?
Mr SWAIN – Treasury takes advice from TASCORP about the future yield curve, which indicates what the market is saying about the level of interest that must be paid to be attractive to debt providers. I just have to choose my words a bit carefully here. The market will form its own view as to how a credit rating is likely to evolve and price that into its offering of debt.
The numbers you’re referring to come from TASCORP’s view of the future cost of debt. The future cost of debt TASCORP provides is reflecting market expectations.
Mr BAYLEY – Which is that it stays stable or shifts to negative?
Mr SWAIN – A negative rating means that unless there is some change, there is likely to be some credit downgrade.
Mr BAYLEY – Is this the reason in this Budget ‑ in the 2023‑24 budget, you outlined that government would consider the establishment of a minimum credit rating for certain government businesses. In this Budget, following consideration of the issue, the government has determined not to proceed with this. Is that an indication that you expect Tasmania’s credit rating to be downgraded and, therefore, you don’t want to see those implications flow on to our government businesses?
Mr SWAIN – I’ll just preface what I think, since the Treasurer ‑ Dean can answer that well. Again, two unrelated processes.
Mr BURGESS – The target that was in the fiscal strategy was to investigate looking at a minimum credit rating for businesses, which we did. It turned out, in summary, to be impractical, in our view. You’re left with two choices: one is that Treasury or TASCORP form their own view, which is not independent; or you pay the ratings agency to individually rate the businesses, which is prohibitively expensive given the likely benefits of that.
So, the government’s decided not to proceed with that measure because of those practical considerations, rather than any broader issues around –
Mr BAYLEY – What are the implications of that for government businesses? And then more broadly, to the Treasurer and to the secretary, do you expect a credit rating downgrade in the upcoming update?
Mr ABETZ – For the businesses it’d mean business as usual because nothing’s changed. In relation to whether or not things are going to change with the credit rating agencies, it would be singularly inadvisable to try to make a prediction.
