(Transcript from World News Australia Radio)
The agreement means the government will be able to change the laws relating to debt in the lower house, and get it through the Senate with Greens support.
It also signals the end of a long-running argument over initial plans by Treasurer Joe Hockey to increase the ceiling from $300 billion to $500 billion.
But the opposition says the alliance between the two is hypocritical in the extreme after all the anti-Greens rhetoric the Coalition used about the party when it was in opposition.
(Click on audio tab above to hear full item)
Australia's debt ceiling was introduced in 2008 by the former Rudd Labor government.
Australian Greens leader Christine Milne says it has become a toxic political tool that's rendered debate around debt artificial.
But she says a reasonable debate can now take place.
Senator Milne says it's clear with the economy slowing government spending is keeping things ticking over.
She says the Greens want to see money invested in the long-term interests of the country.
Ms Milne says the deal ensures greater transparency, and that debt has never been presented clearly enough for there to be a national debate about it in Australia.
"This, I think, will return some maturity to the debate around debt and get rid of what has become a phoney debate. Every time the government has wanted to raise the debt ceiling, we have had the imported, Tea Party-style debate here in Australia where the focus has been on the figure rather than on what the debt is being used to do".
The deal has been struck in return for a host of transparency measures.
As part of the agreement, the government has promised to deliver a debt statement whenever borrowings increase by 50 billion dollars.
The agreement also requires further debt reporting in the May budget and in other budget statements.
In addition, a debt statement with details regarding government spending on climate change will be included in future budgets and key economic reports, with the extent to which the expenditure has contributed to debt also included.
All future Intergenerational Reports are to contain an extra section on the environment, including climate change and the effect of these policies and their impact on the economy and budget.
Labor's Finance spokesman, Tony Burke, says the move simply allows the government to make Australia's debt unlimited.
Mr Burke has accused the Coalition of hypocrisy, saying it's the same group of people who have been criticising too-high debt levels for years - and now they want it to be unlimited.
"The level of hypocrisy from the Government is way beyond where I thought they'd be. I thought it was a big enough step when Joe Hockey first came in to say, oh by the way can we take debt to half-a-trillion dollars? Well he's actually delivered more than that now. He's actually said there will be no limit at all on how high debt is allowed to be. Joe Hockey is no Peter Costello. You wouldn't have found Peter Costello cutting a deal with the Greens to make debt unlimited."
Mr Hockey says the agreement comes down to greater openness about debt and how it is used by the government.
He has told the ABC that Labor's reaction to the government's debt deal with the Greens is absolutely bizarre given Labor had an official coalition with the Greens in the last parliament.
"It's like a husband being upset that their ex-wife went off and had a cup of coffee with some other man. I mean, it's bizarre behaviour from Labor. They don't want to participate in the economic debate. Labor Party today is not only opposing what we took to the last election; they are opposing what they took to the last election. They want us to keep their promise on Gonski funding, school education funding, but now they are opposing the savings that they announced to fund the Gonski education proposals. "
But Labor's Kelvin Thomson says it's a bit more than that.
"Well I think it's a bit more than a cup of coffee: I think it's the candlelit dinner and flowers. But from my point of view I am not concerned about the Greens in relation this because I have never thought that they cared a great deal about balancing the books."
Liberal backbencher Steve Ciobo has defended the deal with Greens despite their ideological differences.
Mr Ciobo says doing a deal with the Greens on this issue is nothing like the formal alliance between Labor and the Greens when Labor was clinging to power.
Furthermore he says it's likely to happen again.
"Well we are always willing to work with any political party that's demonstrating they are willing to put Australia's national interest ahead of their own political expediency. For the Australian Labor Party to claim they are governing or attempting to govern from opposition in Australia's national interest just reinforces they have completely lost the centre ground when it comes to economic orthodoxy."
