State liabilities on the rise
Auditor-General's Report to Parliament
31 October 2012
The 2012 Report on State Finances, released today shows the State’s liabilities have increased to almost $160 billion, up from $130 billion last year. Liabilities are nearly twice the level of 4 years ago.
Impact of current economic conditions
Economic conditions have meant the State’s superannuation liabilities have increased by 50 per cent in the last 12 months. The difference between the State’s obligations and the assets used to fund them was measured at $50 billion at 30 June 2012, up from $34 billion one year ago. This is even after an extra $4.6 billion was paid in the current year to reduce them. The State has a commitment to eliminate this liability by 2030.
The State’s borrowings have increased by over $10 billion during 2011-12, from $63 billion to $73 billion. About half of this was new borrowings, used to fund capital projects, operating cash flows and part of additional superannuation contributions. The other half is directly related to the bond rate.
Generally, when the cash rate falls, bond rates also fall, which causes the value of bonds to go up. The fall in bond rates in 2011-12 increased the fair value of the State’s existing borrowings by around $5 billion.
AAA Credit rating
Whilst the increased liabilities are a consideration for ratings agencies assessing the State’s credit rating, it is not the only factor.
“Last week, Standard & Poor’s confirmed the State’s AAA rating but changed the outlook from stable to negative, with a one in three chance of a downgrade within two years,” said Mr Achterstraat. “Standard & Poor’s cited capital expenditure pressures and revenue risks as creating challenges,” he added.
“Various other states have recently suffered downgrades in their ratings. The New South Wales debt levels are higher than some other states, but the current rating indicates New South Wales may be able to tolerate this higher level,” said Mr Achterstraat.
Barry Underwood, Executive Officer, on 9275 7220 or 0403 073 664 and email firstname.lastname@example.org.
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