S&P Global Ratings confirmed both its AAA long-term sovereign rating and its A-1+ short-term rating for Australia and retained a stable outlook on the long-term assessment. The agency said the stable outlook reflects its expectation that Australia will keep general government deficits and net debt at modest levels over the next two years.
S&P projects Australia’s general government deficit to be about 1.6% of gross domestic product for each of the next two years. The agency noted that planned increases to property taxes and a package of savings measures in the federal budget should help blunt the effects of growing structural spending pressures.
On the trajectory of public debt, S&P expects net general government debt to stabilize at roughly 28% of GDP in fiscal 2029, a marked rise from 12% of GDP in fiscal 2019. That projection reflects the agency’s assessment of ongoing fiscal dynamics and the impact of policy changes included in recent budget measures.
Economic growth is expected to slow, with real GDP projected to decelerate to 1.5% in fiscal 2027 as higher interest rates weigh on domestic sentiment. S&P noted that the Reserve Bank of Australia raised its policy rate at each of its first three meetings in 2026, taking the cash rate to 4.35%.
Inflation has also remained above the central bank’s target. Annual headline inflation was 3.8% in the 12 months to June 2026, while trimmed mean inflation was 3.6%, both above the Reserve Bank’s 2% to 3% target range, the agency said.
Fiscal policy actions cited by S&P include elements from the May 2026 federal budget. Those measures encompass changes to tax settings - notably curbs on negative gearing and alterations to the treatment of capital gains tax - and proposed constraints to forecast spending on the National Disability Insurance Scheme, measures the government says would yield about A$38 billion in savings over four years.
S&P cautioned that it could downgrade Australia’s ratings if both fiscal outcomes and per-capita economic growth were to perform materially below the agency’s current forecasts. The ratings agency also flagged external debt dynamics, saying that external debt net of public sector and financial sector external assets is expected to average more than 200% of current account receipts.
Context and implications
The affirmation of Australia’s top-tier long-term rating and strong short-term grade reflects S&P’s view that, despite a higher debt level than a decade ago and persistent inflation above the central bank’s target, the country’s fiscal trajectory and policy measures should keep deficits and net debt within manageable bounds over the near term. The ratings agency’s assessment ties together fiscal policy plans, debt metrics, inflation readings, and monetary policy moves in forming its outlook.