The change in Australia’s premiership following a Liberal party leadership vote held on Monday will not have an immediate credit impact for the sovereign, says Fitch Ratings. Frequent changes in leadership, with four prime ministers governing the country over the past five years, have made little difference in core economic policies so far. There is no sign that this latest transition will lead to deterioration in policymaking effectiveness.
Notably, there is cross-party consensus at the federal level in favour of fiscal consolidation – there is much less appetite in Australia relative to some other high-grade peers for abandoning efforts to reduce deficits. Recent leadership changes, including the vote against incumbent Tony Abbott on Monday, have been driven more by personality and social or constitutional issues as opposed to differences over economic policy.
Political volatility will, in general, only have a credit impact if it were to result in tangible economic policy changes, loss of foreign investor confidence, reduction in policymaking capacity and/or if it impaired the authorities’ ability to respond to a crisis. But in Australia’s case, there has been little to no signs that the recent frequent changes in power have had any such effects.
Beyond the leadership issues, Australia shares some of the long-term challenges of other high-grade sovereigns, including an ageing population and the need to foster productivity growth. The Australian economy is also facing immediate challenges linked to its reliance on commodity exports, particularly to China. High personal indebtedness – over 150% of disposable income – also means households are more vulnerable to higher interest rates and any substantive worsening in the job market. Incoming Prime Minister Malcolm Turnbull has placed some weight on the need to address long-term economic challenges in his public statements, although it remains to be seen whether this will lead to concrete policy changes.
Any further deterioration in Australia’s macroeconomic position may require more politically difficult policy decisions to keep fiscal consolidation on track. As such, continued political volatility, while not a significant issue thus far, could yet impair authorities’ ability to implement policies should economic conditions deteriorate further.
Turnbull, the minister for communications, defeated Abbott as leader of the Liberal party in a 54 to 44 vote by Liberal MPs on 14 September. Turnbull was sworn in as Australia’s 29th prime minister on 15 September.
