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Triple A standing is worth billions

| 02.01,12. 11:48 PM |


Triple A standing is worth billions

January 03, 2012

LOSING its coveted AAA credit rating would cost NSW $3.75 billion, according to a state Treasury estimate.

It would also take the state 10 years to regain the rating if it was lost.

The $3.75 billion hit would come because of an increased interest bill on debt the government would have if it was to lose the rating.
Treasurer Mike Baird revealed the figure in a bid to sound a warning to those who argue the government should abandon the AAA rating to build more infrastructure.

Common wisdom holds that for the Coalition government to build more roads and rail they must slash the public service, dump the AAA (which would give them more borrowing capacity) or embark on a round of asset sales, including the $20 billion sale of electricity poles and wires which Premier Barry O'Farrell recently blocked.
Mr Baird argued yesterday the government could still fund the North West Rail Link and a major road project - expected to be either the M4 East or M5 duplication - even without the poles and wires sale or the loss of the AAA.
The government is leasing out the desalination plant, selling Port Botany and the state's electricity generators.
"We expect to raise between $7 billion to $10 billion from the sales," Mr Baird said.
"We think that with a borrowing program, coupled with partnering with the private sector, it gives us a capacity to get on with the infrastructure and that includes starting a major road project within this first term.
"We look forward to the recommendations from Infrastructure NSW (on which road project)."
The acting head of the parliamentary budget office, Tony Harris, found last year that the government could borrow another $8 billion without losing the AAA rating, but after that it would be forced into the AA+ category.
The Treasury advice states: " NSW Treasury advises that on average it takes 10 years to recover back to AAA.
"The cost of a downgrade over 10 years is greater than $2 billion. Over full life, $3.75 billion.
"The cost ... of a downgrade reflects higher interest rates on new debt issued and higher interest rates on previous debt that expires and needs to be rolled over."
Mr Baird said advice showed that even if the state dumped the AAA, it would not then be able to afford the higher interest rates created, so it would not be able to borrow more.
"One of the concerns for us on the AAA is the cost to the budget and what that cost is," he said. "There's no doubt the next six to 12 months are very uncertain in terms of the credit outlook. One thing is for sure, the credit rating that gives us the most options is the AAA."


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