Will half-price flights save Australia’s S&P credit rating?

Will half-price flights save Australia's S&P credit rating?

While some Australians gear up to take advantage of half-price flights, Standard & Poor's is watching Australia's credit rating.

Gretchen Kennedy

Gretchen grew up in a small Connecticut town where she learned to read The Wall Street Journal as part of the grade six enrichment program. She moved to Australia in 2002, earned a Master of Arts (Professional Writing) and went on to spend eight years writing on Wall Street. In June 2018, Gretchen returned to Australia and has since developed a keen interest in all things ASX. In December 2020, she started writing for the Motley Fool. Gretchen's usually writing something, reading a book or chasing her dogs around.

Published March 12, 2021 10:49 am AEDT

While some Australians are gearing up to take advantage of the government peddling half-price flights as part of its latest stimulus, Standard & Poor's is watching Australia's credit rating.

Countries are assigned credit ratings as a reflection of economic stability. A rating downgrade can result in higher interest rates because the country's government loses access to foreign investors.

asx share price cut represented by scissors cutting through $100 note — Image source: Getty Images

GDP forecast not AAA worthy

Today's The Australian Financial Review cites that S&P's lead Australia credit analyst Anthony Walker doesn't think Australia's current economic outlook will merit the top AAA rating.

Mr Walker predicts that 2021 will see federal and state deficits that equal approximately 14% of GDP. He doesn't believe a AAA rating will be granted if that's the case.

To conclude a country's credit rating, S&P consolidates all government debt to achieve a general estimate. The ratings agency then bases its outlook on that number.

Australia's current S&P rating is AAA with a negative outlook. The country also boasts the top rating from two other major ratings agencies, Moody's and Fitch.

Will half-price flights boost our credit rating?

Considering a country's credit rating is based on its debt, arguable offering half-price airline tickets isn't likely to address a score axing.

However, rating agencies do take into account the rate of economic growth a country demonstrates. On that note, depending on whether the initiative is effective, Australia may enjoy a spike in consumer spending as the half-price-flights party gets started. In turn, that could help appease S&P.

An editorial in today's The Australian likes the travel boost concept and thinks the government has made the right decision. It estimates that Australia's domestic tourism businesses employ 611,000 people and pump over $100 billion into the economy annually.

Foolish takeaway

Credit rating downgrades aren't the end of the world. Quite often, an entity will put in the necessary work to shape up once it learns an agency has put its rating on watch.

We won't know if the latest economic stimulus crack is effective until a few months down the road. In the meantime, hopefully, the half-price flight scheme leads to some banger domestic holidays.

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