The decision means Australia maintains an AAA credit rating with all three credit rating agencies.
In making its decision, S&P said the “stable” outlook reflects its expectations that the Australia’s fiscal position will return to surplus by the early 2020s.
While it projects a balanced budget by 2019-20, S&P expects large infrastructure spending at the state government level will likely keep the budget in deficit until 2020-21.
“We expect steady government revenue growth supported by the strong labour market and relatively robust commodity prices, to be accompanied by expenditure restraint,” S&P said.
“We also expect property prices to continue their orderly unwind, and that this slowdown won't weigh heavily on consumer spending and the financial system’s asset quality.”
However, S&P noted Australia’s rating could come under pressure if house prices fall sharply and increase risks to fiscal accounts, real economic growth and financial stability.
It believed a stronger fiscal position would be a strong buffer to absorb the consequences of an abrupt weakening of the housing market.
Treasurer Josh Frydenberg referred to the S&P upgrade as “a strong expression of confidence in the government’s economic management”.
“The announcement today will give a further boost to confidence in the economy where business conditions are already well above historical averages, which is translating to ongoing investment and employment growth,” Mr Frydenberg said.
