Govt claims AAA credit rating "endorsement" of its budget, economic strategy

The confirmation by S&P, following a similar assessment by rival agency Fitch last month, will help contain the financial pressure on the government, which has forecast the interest bill on its debt will reach almost $32 billion in 2025-26.

The S&P report follows the latest update on the federal government's finances which shows that it finished 2022 in a stronger position than had been expected.

According to the Department of Finance's monthly financial statement, the underlying cash balance for the six months to December 31 was a deficit of $14.7 billion, far smaller than the $26.2 billion deficit predicted at the time of the October budget.

Treasurer Jim Chalmers said the confirmation of the country's AAA status was a "strong endorsement" of the government's management of the budget and the economy.

In its October budget the government directed most of a revenue windfall to paying down debt and held spending growth to an annual average of 0.3 per cent over the next four years.

"Our first budget began the hard yards of fiscal repair," Dr Chalmer said. "The government's spending discipline means payments are forecast to fall in real terms over the next two years."

The Department of Finance figures show that in the six months to December government receipts were $8.8 billion higher than had been expected while expenses were $2.8 billion lower, driven on one side by the revenue resulting from soaring commodity prices and higher income tax receipts and, on the other, from reduced demand for social assistance like unemployment payments.

The Australian Chamber of Commerce and Industry is urging the government to keep a tight lid on spending in its May budget and direct future gains to lowering debt, which is forecast to reach $1.159 trillion by 2025-26.

ACCI chief executive Andrew McKellar it was to the government's credit that in October it had directed a "substantial proportion" of its revenue windfall to reducing debt and "they will have to repeat that in May".

"What we are looking for in this Budget is to see that this government has established a pathway to a more sustainable fiscal strategy," Mr McKellar said. "The overriding priority must be on reining in spending to sustainable levels."

The business leader acknowledged the pressure on government finances from priority areas including defence, health, education and the National Disability Insurance Scheme but said now was the time to put tax reform back on the national agenda.

Prominent economist Chris Richardson said it was clear the government's finances had in the short term benefited from the effects of the war in Ukraine and the international fight to tame inflation in pushing up commodity prices.

But he warned this fiscal boost was merely delaying the need for the government to tackle the challenge of putting finances on a long-term sustainable footing.

Mr Richardson said the increasingly dangerous global environment meant the country had to lift its spending on defence while the size of the unemployment benefit was inadequate and needed to increase. In addition, the NDIS had to be funded in a long-term sustainable way.

"This is a longer-term repair task and it hasn't begun yet," the economist said.