Moody's has joined the number of observers concerned about household indebtedness in Australia. Credit:Bloomberg While Moody's expects fiscal consolidation to be a key policy objective of the government, it is adopting a watchful approach to how the new unholy alliance in Canberra plays out. It will be a major test of Prime Minister Malcolm Turnbull's ability to navigate his policies through hostilities within his own party and the Senate. Moody's "noted that trends in Australia's credit profile will be determined by whether fiscal objectives are effectively implemented, whether external financing conditions remain favourable and how evolution of the housing market affects domestic growth and financial conditions." Overall, Moody's is predicting wider economic conditions to remain relatively strong – but this will, in part, be based on the continued strong housing market.

However there are already signs that the heat is coming out of this market. This week there were reports that property prices are falling in some areas as additional supply is leading to gluts, particularly in inner city apartments. Moody's highlighted the weaker Australian dollar as a positive, alongside historically low interest rates. While the betting on interest rates being lowered even further next month has moved to about 65 per cent, the Australian dollar has remained remarkably resilient despite the messy election and Brexit. Standard & Poor's said last week there is a one-in-three chance the rating will be downgraded within two years. It said without remedial action, "the government's fiscal stance may no longer be compatible with the country's high level of external indebtedness". S&P says over the next six months to 12 months it will monitor the government's ability to legislate measures that would get the budget into better shape. It is prepared to revise the negative watch on the AAA rating if there is progress.

While Standard & Poor's has given the Turnbull government a deadline to fix its sovereign balance sheet, the sentiments of the two ratings agencies are not particularly different. Moody's echoed S&P's sentiments that the government can find ratings salvation if the budget outlook improves. "(Any) evidence that measures that would effectively reduce Australia's budget deficit and point to a stabilisation in government debt would support Australia's credit profile," Moody's said on Monday. Separately, Fitch Ratings said last week political gridlock that leads to a sustained widening of the deficit would "put downward pressure on the rating, particularly if the economic environment deteriorates". Fitch is yet to deliver an update since the Coalition has been returned to power – albeit with what looks set to be a wafer-slim majority.

Given all three of the credit ratings agencies appear to be on the same page – ie, the outlook for Australia's sovereign rating is under threat if the government is impotent to legislate measures to curb the deficit it could, in theory, gift Turnbull with sufficient muscle to pressure the Senate into pursuing his agenda. Opposition Leader Bill Shorten reiterated Labor would work with the government on budget repair that is fair. "Our AAA credit rating is under threat, we've got to get the budget back, the debt under control," Shorten said on Monday. Loading While this sounds positive, it contains no detail on how any collaboration would work and it sounds more like a news grab response to the negative implications from another ratings agency press release.

It remains to be seen whether Turnbull can corral his team and opponents in time to ensure that Australia can maintain its prestige credit rating from the three ratings agencies – one that it achieved in 2011.