Australia's top-tier triple-A rating looks safe for now, even as Treasurer Josh Frydenberg's third budget predicts big deficits over the next few years with government debt edging closer to $1 trillion.
Global rating agency 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.
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."
Australia remains on a negative outlook, "reflecting a substantial deterioration of fiscal headroom at the 'triple-A' rating level and our view (is) that risks remain tilted toward the downside".
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.
