The ACT's slower-than-expected budget recovery after the COVID-19 pandemic has prompted a global credit rating agency to downgrade its score for the territory.
The territory was stripped of its AAA credit rating by S&P Global, which dropped its long-term issuer rating to AA+.
Chief Minister Andrew Barr said the economic outlook remained positive and the once-in-a-century pandemic economic shock had affected credit ratings across Australia.
The ACT economy remained strong, with solid prospects for growth, and the agency noted the prudent management of public debt, but warned growing expenses and infrastructure spending were delaying budget repair after the pandemic.
"The downgrade reflects the territory's slower fiscal recovery from the pandemic than we expected. ACT's after-capital account balance is larger, and its ratio of tax-supported debt to operating revenues is much higher, than those for all 'AAA' rated peers globally," the agency said in a statement.
"We project ACT's budgetary outcomes will steadily improve over the next three years, albeit at a slower pace than we previously anticipated. Rising operating expenses will push the operating balance back into deficit in fiscal 2024. A step up in capital delivery will flow through to after-capital account deficits averaging 9 per cent of total revenues during the next three years."
The agency said the AA+ rating for the ACT was supported by the territory's excellent financial management, a very-high-income economy supported by a stable public sector and exceptional liquidity.
The lower credit rating would drive marginal increases to the ACT's borrowing costs, but the territory is expected to retain good access to debt markets.
The agency said it forecast a sharp rise in government spending to result in a deficit in fiscal year 2024, compared to their previous forecasts of a surplus.
"We forecast ACT's total tax-supported debt, as a proportion of operating revenues, will peak at 163 per cent in fiscal 2024, and fall slightly to 154 per cent in fiscal 2026. This ratio has grown significantly, up from 93 per cent at the end of fiscal 2019," the agency said.
"This ratio is similar to that of 'AA+' rated Australian states of New South Wales and South Australia, and higher than Queensland and Tasmania. Debt is substantially higher than that of 'AAA' rated local and regional governments. Interest costs will rise steadily, averaging 4.7 per cent of operating revenues over fiscals 2023-2025."
Mr Barr said in a statement the government had chosen to invest in expanded health infrastructure, more housing, schools and public transport to support population growth and deliver higher incomes and skill levels into the future.
"The government's choice is to invest now, with a clear longer term fiscal strategy to progressively improve the operating cash position and fully fund our superannuation liability. We know this supports intergenerational equity in our community," he said.
Mr Barr defended increased spending on pandemic support measures and other cost-of-living, housing and public health initiatives, which he said supported households and businesses in the territory.
"Despite these challenges, our economic resilience, with a strong jobs market and strong population growth, has meant the ACT is one of the fastest growing jurisdictions in Australia," he said.
Now only Western Australia has a AAA credit rating from S&P Global, with the ACT's AA+ on equal footing with NSW, Queensland, Tasmania and South Australia. Victoria has a AA rating.
Opposition Leader Elizabeth Lee said the credit rating downgrade was extremely disappointing but not surprising.
"The Canberra Liberals have been raising concerns over the level of debt this Government has been accumulating for some time now. At the same time, Andrew Barr has been more focused on trying to spin the territory's poor financial position," Ms Lee said.
Ms Lee said the interest bill - already costing Canberrans more than $1 million a day - would grow.
"What is worrying is that for Canberrans, this will mean higher rates, land tax, car rego fees, levies and other hidden charges from Barr's Labor Greens government," she said.
