Two charts showing why Australia can relax about its AAA rating - at least for this year

Getty/Sergio Dionisio

Australia’s government debt has been climbing at an alarming rate over recent years and the 2016 budget papers show the Federal government will continue to run deficits for a number of years.

That means Australia’s net debt position will continue to rise and is expected to peak at 19.2% of GDP in 2017/18. That’s a new high for the modern era.

That means “some budget metrics are nearing uncomfortable levels for the ratings agencies”, Michael Blythe, CBA chief economist, said in his budget summary overnight.

But Blythe said the government has done enough at the moment to forestall any potential credit downgrade.

“Our assessment is that the threat to Australia’s AAA/Aaa sovereign ratings remain in abeyance for another year.”

But it’s clear, from his comments, and those from credit rating agency Standard and Poors overnight, that a lot still rests on the treasurer’s forecasts for revenue, expenses, deficits and debt being correct.

“We’ve previously highlighted, improving budget balances remain important to the rating to offset Australia’s high vulnerability to shifts in offshore financial market sentiment,” Standard and Poors said overnight when it affirmed Australia’s AAA/Stable rating.

In the end though, another of Blythe’s charts puts the level of debt being carried by the Australian government into a global perspective.

Sure it’s been climbing fast. But a global comparison still looks incredibly favourable to Australia.

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