Australia's foreign debt has hit extreme levels that match the worst in the world according to a startling warning from ratings agency Standard & Poor's that will intensify the dispute over budget repair after years of political deadlock on major savings.

The global Standard and Poor's executive who signs off on Australia's credit rating has rung the alarm bells over the nation's debt. Suggesting the Turnbull government will need to find substantial new savings to avoid losing it's coveted AAA rating.

As federal parliament resumes today to debate key budget bills this week, the ratings agency outlook will be ramping up the pressure on all sides of politics to avert a credit rating downgrade that would increase lending costs across the economy. John Chambers the chairman of the Sovereign ratings committee suggests the federal government risked losing the AAA rating if it continued to miss its fiscal targets.

The government will point out that it's fiscal position is strong, but it's not quite as strong as it used to be. As federal minister Scott Morrison declared to an economic gathering in New York recently. The nations net foreign debt liabilities rose from $976 billion to $1,045 trillion over the 12 months to June including Commonwealth, State and Private sector borrowings while net foreign equity fell from - $70.1 billion to $8.6 billion over the same period according to The Australian Bureau of Statistics.

The comments are a sign of deepening concerns about Australia's economic fortunes after similar warnings from Fitch Ratings and Moody Investor Services at a time when economic leaders are urging stronger action to head off a crisis. Former Reserve Bank governor Glenn Stevens said the nation faced a moment of crisis if it did not act as soon as possible to reduce budget deficits, while former Treasury secretary Ken Henry said the appeals to populism in Canberra were under mining responsible fiscal policy.

Mr Chambers made it clear a downgrade to Australia's credit rating was an option in wake of Standard & Poor's decision in July to put Australia on negative outlook in part because of the concerns that the new Senate would make budget repair very hard to achieve.

Published by Julian Groom