Global rating agencies are happy to leave Australia with it's top-tier triple-A rating for now, even as Treasurer Josh Frydenberg's third budget predicts big deficits remaining over the next few years.
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Even so, two of the big three - Standard & Poor's and Fitch Ratings - say the future still remains uncertain and why they are keeping Australia's rating on a negative outlook, meaning it could be cut in coming years.
A credit rating downgrade would potentially raise the cost of borrowing for government and big business and banks in overseas markets, which in turn could be passed on consumers.
Fitch said the negative outlook reflects uncertainties around the medium-term gross government debt outlook, which is destined to hit $1 trillion in the 2022/23 financial year.
"These uncertainties remain in light of the evolving global pandemic, risks to the growth outlook, along with the government's commitment to bring down the unemployment rate through sustained fiscal support," it says.
But it says the government's plans to support employment and firm-up the post-COVID economic recovery through tax cuts and job-creation measures, should help boost medium-term growth, which in turn is positive for the medium-term debt trajectory.
Tuesday's budget predicts a deficit of $161 billion for 2020/21, compared to the $197.7 billion deficit forecast in December's update.
For 2021/22, the deficit is seen at $106.6 billion, only a shade smaller than the $108.5 billion previously forecast.
Standard & Poor's warns risks to Australia's triple-A rating still lie to the downside.
"(The) budget confirms that the pandemic, and the government's response, will have a huge effect on fiscal outcomes relative to the pre-pandemic trajectory," S&P said.
"Unsurprisingly, the fiscal 2020/2021 year will take the brunt of the hit. In our view, trade tensions and geopolitical risks are also likely to hinder parts of the economy."
Moody's Investors Service says budget forecasts remain consistent with its expectations of moderate fiscal consolidation in the wake of the strong economic recovery and continued falls in the unemployment rate.
"Looking ahead, balancing fiscal support for growth to drive unemployment lower and addressing the need for fiscal consolidation, in a context of higher spending on areas including aged care and skills development, will be important in maintaining the current triple-A credit rating," Moody's said.
Australian Associated Press
