Moody’s Ratings has downgraded Tasmania’s credit rating from Aa2 to Aa3, citing a sharp and sustained increase in the state’s debt and interest burdens that has weakened Tasmania’s financial strength.
The reasons given for this, not surprising downgrade when considered in light of the state budget before us, included a number of real issues.Tasmania’s net debt has doubled from approximately 66% of operating revenue in June 2019 to more than 130% at June 2025. Without countermeasures, Moody’s projects this could surpass 180% by the fiscal year 2029.
Interest costs are projected to increase from 3.4% of operating revenue in fiscal 2025 toward 7% by the fiscal year 2029, with cumulative interest payments over the next three years expected to be 27% higher than previously forecast.
The ratings agency noted that Tasmania’s debt-to-economy ratio of around 36% is among the highest of Australia’s states and territories, reflecting a “disproportionately high debt burden relative to its small economy.”
Of particular significance, Moody’s cited weakening budgetary management, including “reduced effectiveness of multi-year planning for operating and capital expenditure,” which has contributed to sustained deterioration in financial performance. Which is code for saying the Forward Estimates cannot be believed. This was glaringly evident during recent Estimates hearings. I lost count of the number of eye- rolls and shoulder shrugs as we asked about gaping holes in the Forward Estimates.
Moody’s noted these fiscal pressures “will increasingly constrain the state’s ability to respond to future shocks, reflecting weaker governance strength than we have assessed in the past.”
While acknowledging the new government’s stated commitment to fiscal consolidation, including plans to restore the operating balance to surplus by fiscal year 2030, Moody’s cautioned that “the limitations of a minority government may slow or delay implementation of policy measures making them less effective.” For me the limitations aren’t those of minority government as it was under majority government’s watch which saw the problems multiply. The limitations are caused by a congenital reluctance to understand the gravity of our situation.
The stable outlook reflects expectations that Tasmania will actually pursue consolidation policies to contain the increase in debt and interest burdens, supported by continued funds from the Australian Government one could ask why they would be happy to hand over more and more cash if we aren’t seriously trying to get the house in order.
So what does this mean for Tasmania? The downgrade will result in higher borrowing costs for the state, reducing funds available for essential services and infrastructure. It underscores the critical need for disciplined fiscal management and effective parliamentary oversight to restore Tasmania’s financial position.