Shadow treasurer Chris Bowen says Australia's AAA credit rating is under threat. Credit:Josh Robenstone While the Abbott government abolished the statutory debt limit with the help of the Greens in 2013, the government is now required to issue a direction to the Australian Office of Financial Management stipulating the maximum "face value" of Commonwealth government securities that can be on issue - effectively a debt ceiling. That means the Treasurer, Scott Morrison, will need to lift the limit soon. Labor says the government is failing its own economic test. "It's no surprise Australia's AAA credit rating is under immediate threat given we have a government that is now breaking the tests it set for itself just a few years ago," shadow treasurer Chris Bowen told Fairfax Media.



"As the budget situation has become more urgent, the government's actions to repair the budget have become less urgent. The government needs to stop the politics and lock in our AAA credit rating by implementing long-term structural budget reforms like Labor's policies on negative gearing and capital gains."

Gross government debt was about $274b when Tony Abbott won power in September 2013, meaning $200b has already been added under the Coalition. It also means the average annual increase under Labor was about $36b - but under the Coalition it has been closer to $60b a year. The interest bill is currently around $16b a year and under the government's own figures, gross debt is projected to reach $600b by 2020. But at a speech in London on Friday, Mr Morrison insisted the government was making progress in reining in the debt. "Despite the debt and deficit legacy we inherited as a government we continue to make progress in getting the growth in government expenditure under control and arresting the growth in Commonwealth debt, which is still well below that of many comparable and other AAA rated economies," he said.

In subsequent comments to Fairfax Media, Mr Morrison said the government had "taken steps to substantially reduce projected debt" by cutting the rate of spending growth from 4.2 per cent under Labor to around 1.5 per cent. The recent debt spike came after the AOFM - the agency that borrows money on behalf of the government - last week had its largest single issuance of Treasury Bonds via syndication of $9.3 billion. Mr Morrison says the results showed high investor confidence in the government's sovereign bonds. When Labor was in power the Coalition focused relentlessly on gross debt, repeatedly warning of a "crisis". But Australian government debt remains low by international standards, with net debt - considered a more important economic measure than gross debt - currently standing at about $300 billion. Commonwealth Bank chief economist Michael Blythe said that level of debt is reasonable.

"For Australia we could almost double it before we get to a level that would be of particular concern to markets," he said. "So there's a bit of leeway if they did want to borrow more to stimulate the economy or build some infrastructure." In 2012, Joe Hockey lambasted Labor for repeatedly breaking "their own self-imposed debt limit", first introduced at the level of $75b by Kevin Rudd.



"On each occasion they promise not to exceed the limit. Well, enough is enough - we are going to keep them to their promises," he said.