By Paul Hemsley

Tasmanian Premier Lara Giddings has defended her state’s economic performance after Moody’s Investors Service booted the island’s credit rating down a notch on the back of rising debt concerns.

Moody’s now puts Tasmania’s credit worthiness at Aa1, a minor fall from its previous score of Aaa, a move resisted by rival Standard & Poor’s (S&P).

Moody’s decision to cut the rating reflected what it terms the ‘persistent large deficits’ that emerged in the 2008/09 financial year, which expanded in subsequent years to $1.8 billion.

The agency said these debts aren’t likely to be lowered in the medium term.

But Ms Giddings said Moody’s Aa1 rating is still of a high quality investment grade and that S&P has confidence in the state’s Budget management strategy, which S&P said was “supported by a culture of planning and transparency”.

“We have been concerned that it would be very difficult to hold the state’s Aaa rating with Moody’s given that it is the highest grade possible under [Moody’s] rating methodology,” Mr Giddings said.

Putting the ratings into a national perspective, Ms Giddings said the S&P ratings for Tasmania were better than South Australia’s AA rating and equal to Queensland.

Ms Giddings said the government remains committed to returning the state’s finances to a sustainable position and aims to restore its Aaa rating in the future.

“Tasmania is not immune from factors such as the high Australian dollar and the effects of the two speed economy,” she said.

According to Moody’s, Tasmania has a ‘poorer economic profile’ than those of other Australian states with improvements unlikely because of weak trends in domestic demand.

The woodchip industry has taken a hit from global uncertainty and a rising Australian Dollar, according to the release, which has caused international buyers to look elsewhere for low cost products.

The resulting credit rating slash comes after the collapse of forestry company Gunns Plantations and its turn to voluntary administration last month resulting from its net losses of $900 million.