What does a credit rating downgrade mean for Queenslanders?

Queensland's credit rating has been downgraded for the first time in 17 years, adding pressure on the state's budget as Brisbane prepares to host the Olympics in less than six years.

On Friday, S&P Global Ratings downgraded the state's rating to AA, noting higher wages and a softer property market sentiment would likely "weigh on" Queensland over the next few years.

Queensland Treasurer David Janetzki, who has warned of such a result since coming to office in 2024, described it as "an inevitability for a very long time".

He pointed the blame at the former state government and his federal counterpart.

However, federal treasurer and self-proclaimed proud Queenslander, Jim Chalmers, said it was "absolutely wrong" for Mr Janetzki to blame Canberra for his "own economic mismanagement".

The downgrade is the talk among economic and political circles, but let's take a look at what impact, if any, it will have on everyday Queenslanders.

Australian economist Saul Eslake said all of this was "no surprise".

He said Queensland's finances were not currently as bad as some other states in the country, but they were deteriorating "more rapidly".

Mr Eslake said the blame for this should be shared.

"I think the primary responsibility rests with the previous Labor government that presided over a rapid increase in spending, unparalleled by an equivalent increase in revenues during its last term," he said.

"The Crisafulli government inherited this situation but so far it has done nothing to correct it and at the margin, its decisions have made it worse."

What does it mean?

The credit rating is a measure of the state's expected willingness and capacity to repay any debt on time.

It's determined by reviewing the state's economic structure and prospects, financial performance, balance sheet position, liquidity and debt management strategy, and the government's fiscal strategy.

Queensland's credit rating has been AA+ since February 2009, when it was downgraded one notch from S&P's top rating of AAA.

After Friday's downgrade, it now sits at AA, with the outlook on the long-term rating stable.

Western Australia is the only Australian state with a AAA rating. New South Wales and South Australia have an AA+.

Queensland now joins Victoria, Tasmania and ACT, which all have an AA rating.

Australia as a whole remains one of only nine countries with a AAA S&P Global credit rating.

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.

In its reasoning for the decision, S&P said Queensland's budgetary performance would "remain very weak" over the next two to three years compared to those with its former ranking.

"The state is embarking on a historically large infrastructure program on major transportation projects, energy projects, hospital upgrades, and infrastructure for the 2032 Olympics and Paralympic Games, while running cash operating deficits," it said.

The ratings agency noted this would result in large deficits.

What is Queensland's total debt?

Queensland's total debt is set to reach $216.47 billion by 2029–30 — an increase of 52 per cent over the next four years.

The state budget handed down in June forecasted the state would fork out $10.87 billion in interest in 2029–30.

That is more than what the government plans to spend on infrastructure for the 2032 Olympic and Paralympic Games.

The downgrade will have an impact on the everyday Queenslander, according to Mr Tunny, but he said it might "not be obvious".

"How it shows up is because it means additional cost of borrowing," he said.

"That's money that has to go to bondholders; it's not money that you can use to fund health and education.

"This impacts the level of service delivery, or it could mean the government ultimately has to increase taxes and charges as that's one way they could close this fiscal deficit."

Mr Tunny said in 2009 the downgrade was "probably a bigger shock" whereas this time it had been "coming for quite a while".

Should Queenslanders care about the downgrade?

Yes, but more so in the long term.

When asked why an average person should care, University of Queensland economics professor John Quiggin said simply: "They shouldn't."

He described the rating system as a "relic of the past".

"There was a time in the last century when people paid a lot of attention to these ratings; they took them very seriously," he said.

“That really fell through once the credit rating agencies gave AAA, the top rating, to a lot of very dubious securities that promptly collapsed.

"It's still a news item, but it certainly no longer has that kind of significance."

Mr Eslake said the downgrade did not matter to the average taxpaying Queenslander in the short term.

But he said in the longer term it would depend on whether the government took “corrective action” hinted at by the ratings agencies.

"Ultimately Queenslanders will find that more of the taxes that they're paying … is going to meet interest on the state's debt rather than paying for the services they expect a state government to provide."

Where to from here?

As mentioned, S&P Global said the economic outlook for Queensland remained stable, but it did provide an upside and a downside scenario for the next few years.

On the upside, the credit agency said it could raise Queensland's long-term rating if the state "runs sustained operating surpluses and narrower deficits" on a continued basis.

It said it would need to do that all while "maintaining its strong balance sheet".

However, on the downside, S&P Global could lower the rating if Queensland's "financial management weakens".

"Weaker management could drive persistent operating deficits and wider deficits after capital accounts, and substantially higher debt," the statement said.

When asked what he would do to improve the budget, Mr Janetzki said, "exactly what we've been doing".

"We are going to continue targeting budget improvements and that's our way forward,"he said.

"S&P might've wanted us to raise taxes or reduce services or stop building; that's not happening because Queenslanders deserve the very best."