Queensland’s credit rating downgrade from AA+ to AA by S&P was expected at some stage, but it was still painful. Queensland has been relegated to the same group as Victoria and Tasmania, both states with a recent history of loose budget management. This is embarrassing for a state that once had Australia’s strongest public finances, as I told Nine News last Friday.
Before 2009, Queensland even held the coveted AAA rating, but we lost it in 2009 when the Bligh Government chose a big infrastructure program over keeping AAA. This time we’ve been downgraded because of the current Government’s judgment that it’s better to bear the consequences of the downgrade than the political pain from the budget cuts, tax increases or asset sales required to rein in the burgeoning debt. The Australian included my thoughts in its coverage of the downgrade:
‘Adept Economics director Gene Tunny said the Queensland LNP government had two years to convince the rating agency it was serious about improving the budget to retain the ratings, but had failed to do so.
“They’ve made the political judgment that it’s better to wear this credit rating downgrade than to wear the political consequences of budget repair,” Mr Tunny said.’
Given the Queensland Government’s significant asset holdings and taxing power, it should have been straightforward to develop a credible budget strategy to maintain the AA+ rating and, indeed, set ourselves up to regain the AAA rating eventually. Alas, that was not the path taken. Instead, Queensland’s persistent budget deficits, exacerbated by recent developments, have forced S&P to act. The property market correction has smashed stamp duty revenues, and global bond markets are signalling higher interest costs for governments. Concerns also remain about public sector wage costs and the ultimate bill for the Olympics.
I don’t want to catastrophise. AA is still an investment-grade rating and comparable to, or better than, the banks’. But the downgrade will have real consequences, as I explained to ABC News:
‘Gene Tunny, director of Brisbane-based Adept Economics, said the downgrade would ultimately mean higher borrowing costs for the government.
“Because the better the credit rating, the better deal you get from the bond market that lends the money to the government,” he said.
The downgrade would therefore bring additional costs.
“This interest bill that the government faces is growing rapidly, and this will add to it,” Mr Tunny said.’
This growing interest bill compromises the government’s ability to deliver public services, including health and education. If it wants to maintain service delivery standards sustainably, it will ultimately need to undertake corrective budget measures. These would be unpopular but necessary.
Gene Tunny, Director, Adept Economics
Published on 14 September 2026. For further information, please contact us at contact@adepteconomics.com.au or call us on 1300 169 870.