Australia's government needs to start hitting its budget forecasts to keep hold of the country's top-notch credit rating, Standard & Poor's says.
S&P associate director of sovereign and international public finance Anthony Walker said the cost of refinancing Australia's external debt is up to three times more than it earns in foreign currency.
Because of that, he said the ratings agency believes it is vital that the government strengthens its fiscal performance and flexibility.
"We really want to see them start achieving some of their forecasts," Mr Walker said.
"There's been a number of years of fiscal slippage and its really time for the government to really step up and deliver on what it's telling us."
"It all comes down to they need strong finances to cover their external vulnerabilities for a triple-A rated government."
The ratings agency this week cut the country's ratings watch to negative from stable, warning Australia will loose its triple-A rating in two years if the government doesn't act.
Mr Walker said S&P would be closely monitoring whether the government was on track to return to surplus.
However, he said not all countries S&P has put on a negative ratings watch have been subsequently downgraded.
"You never know, there might be some type of movement in the government now that we've signalled to them that the time to act is now," Mr Walker said.
"That might actually have some impact on the government and the minor parties."
Meanwhile, he also explained why NSW and Victoria would also lose their triple-A ratings if Australia was downgraded.
"Due to their individual characteristics, those states would be unable to stand up stronger than the sovereign in a time of crisis," Mr Walker said.
"A number of their revenue streams flow through the Commonwealth and we just see that these states will be hit a same rate as the Commonwealth. Therefore, if the Commonwealth is downgraded, states will follow too."
