Soft household spending leading to falling GST revenue - as well as debt being raised for major works - has led ratings agency Moody's to offer a negative outlook for state governments in the coming year.
Soft domestic economic conditions and a slow housing market recovery will squeeze revenue for Australian states in 2020, underpinning our negative outlook for the sector, but will not disrupt 28 consecutive years of growth in Australia. https://t.co/J6899pI8SI #MoodysOutlooks pic.twitter.com/BeFWf6yv4n— Moody's Investors Service (@MoodysInvSvc) November 21, 2019
But Prime Minister Scott Morrison has warned against making rash decisions after the government brought forward $3.8 billion for infrastructure.
That figure is supplemented by spending by the states, and incorporates some new money and projects being started two and three years earlier than previously budgeted.
We're bringing forward $3.8 billion of new investment into building new roads & rail across the country to get Australians home sooner & safer, strengthen our economy & create new jobs.— Scott Morrison (@ScottMorrisonMP) November 20, 2019
Great to chat with @TheTodayShow from Brisbane about it earlier today.#BuildingOurEconomy pic.twitter.com/EN3CX25PBD
The anticipated big infrastructure spending spree as states meet election promises has fed into Moody's 2020 outlook for Australian regional governments, issued on Thursday.
That outlook is negative, based on revenue pressures and rising debt burdens, the report by Moody's vice-president John Manning states.
It notes while the housing market is recovering, this is happening quite slowly.
In the meantime, soft economic conditions are squeezing state revenues, particularly the GST pool.
"While we have tepid wage growth and household confidence and business confidence really quite dampened, the states are having to step up to the plate with significant capital spending programs and a lot of those are being debt-funded," Mr Manning told AAP.
"That's okay and manageable within the current parameters but as debt rises at a rate more rapid to revenue growth, that's something that needs to be managed over the longer term."
Mr Morrison said Australia would not risk its budget surplus to provide more economic stimulus.
"The surplus is not money left down the back of the couch with no economic purpose, it pays down debt," he told the ABC's AM.
The coalition government came under intense pressure to bring forward spending on infrastructure, with big business, the central bank, economists and the opposition calling for faster cash.
But Mr Morrison said the decision wasn't based on a "phone call over the weekend".
"We didn't rush around with our arms flapping in the air in some sort of panic crisis as the Labor Party wanted us to do," he said.
"We just took the sober, calm, methodical approach and got the projects ready."
While there are suggestions more needs to be done to stimulate the economy, the prime minister says sacrificing the surplus is off the table.
"It's critically important for Australia's future financial resilience," he said.
"You just don't go and erode all of your financial resources at a time like this. You make measured and careful decisions."
Labor frontbencher Tanya Plibersek said bringing infrastructure spending forward proved the opposition's claims the economy was in trouble.
"What's not clear from yesterday's announcement in the profile of the spending - when the money will start to be spent, when it will make a difference to the economy," she told Sky News.
"It's not clear which projects are shovel-ready, which ones are years off in the never-never."
© AAP 2019