S&P Global Ratings has lowered its credit rating for the ACT government to AA from AA+ with the “expectation that ACT will incur large deficits after capital accounts and its debt will be structurally higher than in the past”.

The agency says the downgrade reflects another delay in ACT’s return to a cash operating surplus and a further deterioration in deficits after capital accounts.

The ACT lost its AAA rating in 2023 when the agency demoted it to AA+, which had the effect of increasing interest rates to the territory.

Shadow Treasurer Ed Cocks said the downgrade would leave Canberrans worse off and leaves the ACT equal worst with Victoria on the national credit ladder.

The downgrade would push up borrowing costs and add even more pressure to frontline services at a time when households are already paying more.

“Canberrans were already on track to see 26 per cent of every dollar raised by ACT government taxes thrown away on interest,” he said. “Now that is likely to be even higher. Every extra dollar that is paid in interest is a dollar not going to hospitals, schools or community safety.

“Families have been hit with a new health levy and more than 25 new or increased fees, charges and taxes. Yet the Budget keeps getting worse.

“This is not bad luck. It is the direct and predictable consequence of Labor’s choices.”

Meanwhile in announcing the downgrade S&P said: “We expect ACT will return to slim operating surplus in fiscal 2027 (ending June 30, 2027), marking five consecutive operating deficits since fiscal 2022.

“An increase in capital spending, including for new projects added to the pipeline in the latest budget, is likely to push ACT’s deficits after capital accounts above 10 per cent of total revenue over the next two years. These weaker outcomes will also drive ACT’s total tax-supported debt toward 200 per cent of operating revenue, well above our prior expectations.

“Weaker fiscal forecasts reflect growing health costs, wages, and interest costs outpaced steady growth in revenue. ACT’s operating deficits are weak compared with many subnational governments rated in the ‘AA’ category globally. The territory has implemented some initial operational savings and efficiency measures in this budget, though we expect improvements to its operating accounts will be gradual.

“ACT aims to limit expenditure growth in its agencies and directorates through the introduction of new principles to reprioritise projects and rebase its spending to a more sustainable level. ACT has also introduced new revenue measures, including new four-year health levies on property owners and adjustments to rates of payroll tax and motor vehicle stamp duty, to improve its operating accounts.

ACT’s deficits after capital accounts will be larger than we previously anticipated… the territory has also announced several new infrastructure investments in partnership with the Commonwealth government, including a new convention and entertainment centre precinct, as well as an aquatic centre.

“We expect the territory government’s capital expenditure (capex), inclusive of public trading enterprises, to average $A1.6 billion over the next two years before declining from fiscal 2028. However, capex may not decrease as budgeted if ACT commits to other major projects like its light rail extension.”

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