Is Australia's AAA credit rating at risk?

S&P Global Ratings issued a statement earlier this week.

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This week, credit rating agency Standard & Poor's (S&P) warned that Australia's AAA credit rating could be in jeopardy. 

AAA is the highest rating that can be assigned by any issuer of debt.

Along with Moody's and Fitch, S&P is one of three credit rating agencies.

Any changes to Australia's credit rating would weigh negatively on the S&P/ASX All Ordinaries Index (ASX: XAO). 

As reported by the Australian Financial Review, S&P had accused the Albanese government of hiding the full extent of the fiscal deterioration through $104 billion of "off budget items". These included the National Broadband Network, Snowy Hydro, Clean Energy Finance Corporation, National Reconstruction Fund, Housing Australia, and Labor's pledge to waive $16 billion of student loans.

In a note on Monday, S&P analysts Anthony Walker and Martin Foo wrote:

The budget is already regressing to moderate deficits as public spending hits post-war highs, global trade tensions intensify, and growth slows..how the elected government funds its campaign pledges and rising spending will be crucial for maintaining the rating. 

Australian Prime Minister Albanese has offered a different take on the situation. 

The PM, who is hoping to keep his job when voters head to the polls this Saturday, told ABC's 7.30 Program on Monday night that "the triple A credit rating is there". He also pushed back on the suggestion it was at risk. 

In the two years after Labor reclaimed power in the most recent Federal Election, back-to-back budget surpluses were achieved. However, based on the Treasury's forecast of ongoing budget deficits for the years ahead, the Federal gross debt of $925 billion is on track to surpass $1 trillion.

A young man goes over his finances and investment portfolio at home.

Image source: Getty Images

How common is a credit rating downgrade?

While it could be a shock for Australia to lose its credit rating status, downgrades are not uncommon. 

Fitch recently lowered China's rating. On 3 April 2025, Fitch downgraded China's Long-Term Foreign-Currency Issuer Default Rating (IDR) from 'A+' to  'A'. The ratings agency cited "expectations of a continued weakening of China's public finances and a rapidly rising public debt trajectory during the country's economic transition". 

S&P lowered Israel's credit rating on 1 October 2024 from 'A+' to 'A', following the Israel-Hamas war.

Additionally, the United States' credit rating has been downgraded by Fitch and S&P Global. On 1 August 2023, Fitch downgraded it from 'AAA' to 'AA+', citing anticipated fiscal deterioration due to high and growing debt. 

In 2011, S&P lowered the United States' long-term credit rating from 'AAA' to 'AA+', citing political turmoil after an extended debt-ceiling standoff in Washington. While S&P has maintained this rating since then, the ratings agency recently warned that a further downgrade could be on the horizon. 

In a 14 April note, S&P analysts warned:

The outcome of the US government's budget process and policy negotiations over the coming months will help determine policies that inform our view of US sovereign creditworthiness…these discussions could affect our view of the US's fiscal profile.

Motley Fool contributor Laura Stewart has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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