However the global ratings agency said they may reevaluate their decision in as little as a few months should they see little progress being made.
"We remain pessimistic about the government's ability to close existing budget deficits and return a balanced budget by the year ending June 30, 2021," S&P Global said in a press release.
"Over the coming months, we will continue to monitor the government's willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years."
The move was mirrored by Fitch, another of the 'big three' ratings agencies, who also reaffirmed Australia's AAA rating, saying it expects the country's public debt ratios to remain in line with the median criteria for the grading.
Australia stuck to its ambition of returning the budget to surplus in 2020-21 on Monday despite downgrading growth forecasts and fears of losing the coveted AAA credit rating.
The country's resources-driven economy has enjoyed more than 20 years of growth but it is now transitioning out of an unprecedented mining investment boom, and the going has been bumpy with revenues under pressure.
In a mid-year fiscal update, the government revised down the nation's cash deficit of $37.1 billion in 2016/17 - as announced in the May budget - to $36.5 million.
But it forecast widening deficits in the next three years before a return to surplus.
"The government's plan to restore the budget to balance remains on track," Treasurer Scott Morrison said in a statement.
Higher iron ore and coal prices would help support tax revenues, the update said, but this would be more than offset by weaker wage and non-mining company profits.
After knife-edge elections last year, Standard and Poor's warned Australia's rating could be lowered if Canberra did not improve its budget balances and deliver on surplus plans.
Australia is one of only a handful of countries to hold the top AAA rating from all three major agencies, also including Moody's and Fitch, having dodged a recession during the global financial crisis.
Generally, losing the AAA means the nation would be forced to pay higher interest on its debt.
Capital Economics' chief Australia economist Paul Dales said "it probably won’t be long before one or two of the ratings agencies withdraw their AAA rating".
"The treasurer has admitted that in the four financial years starting 2016/17 the budget deficit will be around $10 billion higher than forecast in May’s budget," he said.
"The chances of the budget being balanced by 2020/21, which the rating agencies want, has become even less likely."
Ahead of the update, Deloitte Access Economics' Chris Richardson put the chance of a downgrade at 50-50.
But he told the Australian Broadcasting Corporation he believed if it did happen, it would not be until next year.
"A budget update is a sufficiently complicated beastie -- it deserves some time to be taken for people to go through that in sufficient detail," he said.
The conservative government does not have a majority in the upper house Senate, meaning it has struggled to pass some spending cuts.
This has stymied efforts to rein in debt and deficits, undermining business and consumer confidence with repercussions for the economy, which contracted 0.5 percent in the September quarter.
Given the poor quarterly number, the update changed the government's forecast for annual growth to two percent in 2016/17 rather than 2.5 percent as previously predicted, before rebounding to 2.75 percent the following year.
Budget review sees commodity prices easing
The federal government has taken a somewhat conservative view on the price forecast for Australia's biggest export earner commodities in its mid year budget review.
Despite a surge since the May budget, Canberra is forecasting iron ore prices to decline from an average $US68 a tonne across the quarters ending March 2017 and June 2017.
Prices are expected to drop to $US55 a tonne in the quarter ending September 2017.
"Liaison with industry indicates that there is very considerable uncertainty around the drivers of the recent price movements, with the only consensus being that current elevated prices are unlikely to be sustained," Treasurer Scott Morrison said in the mid-year economic and fiscal outlook (MYEFO).
In the last federal budget, the government had forecast iron ore prices to average $US55 a tonne over 2016/17, but the steel-making commodity currently trades at $US82 a tonne.
Metallurgical coal prices are forecast to remain at $US200 a tonne through the March 2017 and June 2017 quarters, but then slip to $US120 a tonne in the September and December 2017 quarters.
This compares to the previous forecast for prices to average $US91 a tonne over 2016/17.
Similarly, thermal coal prices are expected to average $US62 per tonne over the next few quarters.
Thermal and metallurgical coal prices have nearly doubled since June following China's decision to reduce output from its inefficient domestic mines.
The recent surge in prices means Australia's terms of trade are forecast to rise 14 per cent in 2016/17 instead of the 1.25 per cent expected in May, but will decline by 3.75 per cent in 2017/18 as commodity prices retrace the gains.
Business and unions at odds over MYEFO
Business believes today's mid-year budget update is a fresh reminder for parliament to work together, while unions say the government's still refusing to acknowledge it has a revenue problem.
The review shows the bottom line worsening over the next three years but still with an expectation of a return to surplus by 2021.
The Australian Chamber of Commerce and Industry has praised Treasurer Scott Morrison for avoiding tax increases, but the ACTU's criticised spending cuts it says hit ordinary Australians.
Tasmania can handle MYEFO: Treasurer
Tasmania's Liberal government has dismissed as "relatively neutral" the impact of changes to GST estimates outlined in the nation's latest economic snapshot.
Having previously argued that the island state could not withstand a reduction in GST revenue, Treasurer Peter Gutwein on Monday took a tempered approach to news in the mid-year economic and fiscal outlook (MYEFO) of a likely decrease.
"MYEFO presents a relatively neutral GST impact in total over four years of a $12.1 million reduction, as a result of a smaller national pool offset by a projected larger population share for the state," he said.
"With around $10 billion in GST receipts being received over this period it is but a fraction of a percentage change."
The treasurer further welcomed news Canberra will uphold its federal election financial commitments to Tasmania, including $150 million toward the expansion of the University of Tasmania's northern campus.
Mr Gutwein said the scrapping of the Green Army initiative was disappointing, although he noted the continued funding of existing contracts for the practical environment and heritage conservation program.
The Tasmanian administration will look more closely at the MYEFO as it works to prepare the state's mid-year economic update due early in 2017.
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