Fitch Affirms Australia’s Rating, But Flags Mounting Budget Risks

SYDNEY—Fitch Ratings affirmed Australia’s AAA sovereign credit rating with a stable outlook, even as it highlighted that the country’s high debt relative to countries with similar ratings.

Fitch said the country retains a commitment to the same rules for fiscal sustainability that helped to underpin close to 30 years of economic expansion before the pandemic.

“Australia’s rating is underpinned by the country’s high income per capita and sound medium-term growth outlook, as well as strong institutions and an effective policy framework,” Fitch said in a statement on Monday

It warned that Australia’s fiscal metrics are set to weaken modestly in the next two years. But it anticipated deficits and overall debt would be contained over the medium term, supporting the stable outlook.

The affirmation of the top rating comes despite ongoing concerns about the pace of spending over the past year as the federal government deals with an explosion in costs linked to the national disability insurance scheme while at the same time cutting income taxes.

Government spending measures aimed at cushioning the rising cost of living on households, and falling commodity prices, will put pressure on the budget, Fitch said.

Australia’s general government deficit, which consolidates federal, state and local governments, will reach 2.6% of GDP in the 12 months through June, 2025, from 1.6% in fiscal 2024 and 0.8% in fiscal 2023, Fitch said.

“Aggregate state deficits have been high over the past couple of years, offsetting surpluses at the federal level,” Fitch said. “We also forecast deficit reduction at the state level to be gradual, given a still-large infrastructure development pipeline.”

Rising aged care and the NDIS will continue to pressure the budget, though efforts are under way to contain these costs, it added.

Fitch forecasts economic growth to slow to 1.1% in 2024, from 2.0%, but expects a gradual acceleration in activity from late this year, driving growth to 1.7% in 2025 and 2.1% 2026.

“A recovery should be supported by income tax cuts, probable monetary easing in 2025 and a healthy labor market, which should buoy household balance sheets,” the ratings agency said.

Fitch expects the Reserve Bank of Australia will start to cut interest rate cuts in February, with the policy rate reaching 3.50% by the end of next year, after being on hold at 4.35% since November 2023.

Underlying inflation appears set to trend down to the RBA’s 2%-3% target band by end-2025, from 3.5% in the third quarter, the ratings agency said.

“Still, risks tilt toward delayed cuts given persistent services inflation and a still-tight labor market, with brisk employment growth, low 4.1% unemployment rate and a record participation rate in September 2024,” it added.

For many Australians, the 2026 Federal Budget initially felt like a direct challenge to the way wealth is created, held and transferred between generations.

The headlines were immediate: changes to capital gains tax, reforms to discretionary trusts, restrictions on negative gearing and increased scrutiny of investment structures. Unsurprisingly, affluent families, business owners and investors began asking the same question:

Is the way we hold our wealth still fit for purpose?

In recent days, the government has announced several significant amendments following industry consultation and public feedback, including exempting testamentary trusts from the proposed 30 per cent minimum tax and expanding capital gains tax concessions for small businesses.

The backdown is welcome. But it also highlights something much bigger.

This Budget has accelerated a conversation that many Australian families have been postponing for years.

The conversation is not really about tax. It is about wealth stewardship.

For decades, Australians have built wealth through businesses, property, investments and careful long-term planning. Yet many families have not revisited the legal structures surrounding those assets in years, sometimes decades.

We often see clients who have spent years building significant wealth, only to discover their legal arrangements no longer reflect their current circumstances.

Their children are now adults. They may own multiple properties.

They may have sold a business, entered a second marriage, become grandparents or accumulated digital assets that did not exist when their original estate plans were prepared.

The trust that distributes income may need to be reconsidered. The bucket company may no longer be so attractive.

The Budget has simply exposed a reality that already existed: wealth structures cannot remain static while life continues to evolve.

Importantly, trusts themselves are not the issue.

Trusts are legitimate planning tools that provide flexibility, protection and continuity. When used appropriately, they allow families to adapt to changing circumstances over time.

And neither is tax the issue, really. Getting the fundamentals right is more important for long-term, sustainable wealth than a few favourable tax treatments around the edges.

The real issue is complacency.

Too often, families create structures and assume the job is done. It isn’t.

Estate planning is no longer a document you sign once and file away in a drawer. It is an ongoing process that should evolve alongside your life.

We are also seeing a broader shift in how Australians define wealth itself. It is no longer just the family home and an investment portfolio.

Modern wealth includes businesses, digital assets, cryptocurrency, intellectual property, frequent flyer points and increasingly complex family arrangements.

At the same time, Australians are living longer than ever before, meaning wealth may need to support multiple generations simultaneously. This creates new responsibilities and new risks.

How do you help your children enter the property market without exposing family wealth to relationship breakdowns?

How do you structure wealth so that it remains a source of opportunity rather than future conflict?

These are the questions families should be asking now.

The recent debate surrounding testamentary trusts also serves as an important reminder that policy decisions can have unintended consequences for vulnerable Australians. It is encouraging that the government has listened to feedback and clarified its position.

But the lesson remains: the wealth landscape is changing.

Increasingly, governments, regulators and tax authorities are paying closer attention to how wealth is held and transferred. That means families cannot afford to adopt a “set-and-forget” approach to their structures.

The families who will be best placed for the future are not necessarily those with the greatest wealth.

They are the families with the greatest clarity. Clarity around ownership, succession and governance. And clarity around how wealth will transition from one generation to the next.

Ultimately, preserving wealth is not about avoiding change.

It is about preparing for it.

Because the greatest risk is not change itself.

It is losing the ability to respond to it.

Anthony Hunt is Co-Founder of Wealth Lawyers and former COO of Westpac Private Bank. He advises business owners, investors and affluent Australian families on wealth protection, succession planning and intergenerational wealth transfer

Fitch Affirms Australia’s Rating, But Flags Mounting Budget Risks

General government deficit will reach 2.6% of GDP in fiscal 2025, Fitch said

The Federal Budget may have softened some of its proposed tax reforms, but it has exposed a bigger issue: too many families are relying on wealth structures that no longer reflect the realities of modern life.