Ratings Firms Warn About Australian Government Debt as Milestone Nears

By James Glynn

SYDNEY--Ratings firms have sounded a warning about Australian government's borrowing as a key debt milestone approaches.

S&P Global Ratings affirmed Australia's sovereign rating at AAA after the release of the federal budget on Tuesday, but said windfalls from high commodity prices could be fleeting just as gross federal debt "bumps against the politically sensitive 1 trillion Australian dollar threshold."

The budget forecasts headline budget deficits of around 1.7% of national output over the next four years, compared with 2.0% in the last year's budget.

Still, when combined with large cash deficits at the state government level, S&P estimates general government deficits will remain about 2%-2.5% of GDP.

"Central government gross debt will cross the A$1 trillion mark within the next few months, sharpening political focus on the national balance sheet," it said.

While Australian government debt is still low when compared with other major economies, net general government debt has still risen 13 percentage points of GDP since 2019, S&P said.

The budget contained plans for significant spending cuts in the area of the National Disability Insurance Scheme, and plans to reform taxes on property investment in an effort to deal with record low housing affordability.

The new tax rules on property taxes apply only to assets purchased in the future, so have minimal effect on house prices and rents, it added.

The ratings firm described planned spending cuts on NDIS of A$38 billion over the next four years as "somewhat ambitious."

Containing growth in NDIS spending to 2.0% would mark a dramatic turnaround from growth averaging 24% per year over 2020-2024, it said.

If the federal government has to compensate states facing rising health costs as the NDIS is rolled back, then any fiscal improvement will be undermined, S&P added.

"Our credit assessment consolidates Australia's three levels of government, so spending reallocations among governments do not improve fiscal performance," it said.

Moody's Ratings also warned about the level of combined state and federal borrowing noting "challenges from uneven state-level fiscal positions."

Going forward, the fiscal outlook will also be shaped by risks from slowing growth, owing to supply chain disruptions due to the Middle East conflict, as well as slowing productivity, said Anushka Shah, senior credit officer at Moody's Ratings.

"Structural costs on defense, healthcare, and climate change will further complicate these challenges," Shah added.

-Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

May 12, 2026 20:59 ET (00:59 GMT)