WESTERN Australia should maintain its AAA credit rating if steps being taken by the Barnett government are as effective as hoped, Treasurer Troy Buswell says.
Mr Buswell made the comments after ratings agency Standard & Poor's (S&P) revised downwards its outlook for the WA economy from stable to negative and warned that there was a one-in-three chance of a ratings downgrade in the next two years.
S&P said the revision reflected its expectation that the state's balance sheet could weaken as a result of lower mining royalties, which would take some time to be reflected in its share of GST revenues.
WA's budget had become increasingly reliant on the royalties, which were volatile as commodity prices fluctuated, S&P said.
The WA government currently receives 20 per cent of its revenue from mining royalties.
Mr Buswell downplayed the outlook downgrade, saying S&P's comments were consistent with his own commentary on the state economy.
He said he was confident the steps the government was taking would ensure WA maintained its AAA rating.
In response to a recent plunge in iron ore royalties and a strong Australian dollar, Mr Buswell last month announced sweeping public-sector cost-cutting measures in a desperate bid to keep the budget in surplus.
But on Thursday, he warned the government against responding "too harshly" to a "cyclical movement" in exchange rates and commodity prices.
"It's still my view that we're dealing with a cyclical set of events in and around a high dollar and a relative fall in commodity price," he said.
While revenues from stamp duty and GST had fallen, and notwithstanding short-term fluctuations in commodity prices, mining royalties were on an uptrend, he said.
But they were almost at their peak.
The value of mining royalties would start to plateau at around $6 billion per annum, compared to a projected $4.8 billion in 2012/13, he said.
Even after mining royalties plateaued, there would be continued growth from property and GST as the population continued to rise, he said.
Mr Buswell also confirmed the state government would announce more cost cutting at the forthcoming Mid-Year Economic Review, as flagged last month, to combat the state's vulnerability to exchange rate and commodity price fluctuations.
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