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Australia's AAA rating not in danger: Treasurer Hockey

Australia Treasurer Joe Hockey
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Australia Treasurer Joe Hockey

There is no risk of Australia being stripped of its coveted triple-A credit rating, Treasurer Joe Hockey said on Friday, slapping down speculation the country might be downgraded for the first time in 26 years.

In an interview with Reuters, Hockey said he was confident the economy would extend a run of annual growth that dates back to 1991, and was dismissive of talk that the sovereign debt rating was in danger.

"There is no suggestion of a risk. None. None. We're not even on negative credit watch," said Hockey. "I don't see off-the-cuff commentary from one investment bank as any reliable indicator of where our credit rating is heading."

Investment bank Goldman Sachs this week warned the rating could come under threat within months because of a change to the way Standard & Poor's assessed sovereign risk, combined with the outlook for years of budget deficits.

A spokesman for S&P told Reuters that Australia had not been affected by the change in rating methodology and the agency had not warned of any impending change to the triple-A outlook.

Australia is only one of nine countries in the world that can boast the top rating from all three of the main credit-rating agencies.

Australia's net debt is forecast to rise to A$245 billion ($193 billion) by the end of the fiscal year in June, but at 15 percent of gross domestic product it is very low by international standards.

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Still, the outlook is for debt to grow, with the budget deficit expected to be around A$40 billion in 2014/15, with further shortfalls seen over the following three years.

Iron ore hit

The government's finances have taken a beating as falling prices for iron ore, the country's single biggest export earner, have eaten into company profits and wages.

The Treasury estimates that every $10 per tonne drop in the iron ore price cuts up to A$3 billion off budget revenue. The steel-making mineral has fallen almost $90 since the start of 2014, implying a potential annual hit of A$27 billion.

That painful trend has intensified pressure on Hockey to come up with savings or tax-raising measures in his budget for the 2015/16 year, to be released on May 12, while also ensuring that his policies do no harm to an already sluggish economy.

Hockey's first budget last year proved deeply unpopular and many of its measures were blocked in a divided senate.

Hockey had repeatedly warned of a "debt and deficit disaster" when campaigning for office in 2013 and ahead of last year's budget, prompting critics to accuse him of a scare campaign given basically sound economic fundamentals.

Prime Minister Tony Abbott has promised this budget will be less of a drama, suggesting the government has given up on returning to surplus anytime soon.

"We tried to do 40 years of budget repair and a decade of structural reform in one document," Hockey said on Friday.

"That was clearly too much."