New debt peak not a risk to rating

Australian government debt breaching the half a trillion dollar mark for the first time has not sent alarm bells ringing at one of the world's major credit rating agencies.

But Standard & Poor's is concerned about the federal budget more generally and the potential fallout from a collapse in Australia's house prices, and why the nation's triple-A rating remains on a negative outlook.

Last week gross debt topped the $500 billion and is projected to reach $606 billion over the next four years.

"Debt has been creeping up for the last few years, of itself is not our main concern," Craig Michaels, S&P's director of sovereign ratings told a briefing on Tuesday.

Budget deficits had been more enduring since coming out of the global financial crisis than the agency expected and what the government had been articulating, he said.

A surplus is projected by mid-2021.

Given Australia's external vulnerabilities - high external borrowing and a reliance on importing capital to fund its economic growth - Mr Michaels thinks a strong fiscal performance is necessary at the triple-A level.

"That fiscal performance is looking a little bit less resilient than we thought before," he said.

A second factor is risks from the housing market should there be a collapse in prices.

That would not just have a direct impact on the banking sector, but could also grow into a broader economic slowdown if it weighs heavily on consumption.