Any surge in government borrowing with so-called "good debt" could potentially weaken Australia's hold on its AAA credit rating because the agencies gauging the nation's budget credibility are more concerned about servicing costs than the quality of assets underpinning its debt.
The judgement of both Moody's Investors Service and S&P; Global is ultimately dependent on the overall government debt burden as well as its capacity to pay interest costs, according to the agency's policy documents and a statement to The Australian Financial Review.
S&P; refused to comment ahead of next month's budget on Treasurer Scott Morrison's plans to overhaul the way the government accounts for debt - partly to increase his scope to borrow for infrastructure.
However the agency's ratings methodology clearly indicates that its analysts are bound to emphasise the quantity, rather than quality, of Australia's debt.
Furthermore S&P; warns in its documentation that it is particularly attuned to attempts by governments to shift debt "off budget" to flatter headline deficit numbers.
For that reason, the agency states in its key ratings policy document that changes in the "general government debt stock" as a percentage of GDP is a better indicator of "fiscal performance" than the reported deficit.
"In addition, the headline deficit is sometimes affected by political and other considerations, possibly creating strong incentives to move expenditures off budget," S&P; says in its formal global sovereign rating methodology, which was last updated in late 2014.
The policy document underscores how Mr Morrison's scope to ramp up borrowing for infrastructure remains heavily constrained by the need to retain the AAA rating.
A downgrade would not only deliver a major blow to the Coalition's claim to superior economic management, it could also drive up the cost to taxpayers of servicing the nation's burgeoning debt burden, which is forecast to peak in 2019-20 at 30.6 per cent of gross domestic product - or $604 billion.
Moody's released a statement on Friday that indicated it may be prepared to give the Treasurer some wriggle-room to borrow for infrastructure - but only if the spending generates a strong economic return that ultimately strengthens the Commonwealth's ability to pay back the debt.
Moody's associate managing director Marie Diron also warned that the economic quality of infrastructure spending can be difficult to measure.
"Spending, by the government or the private sector, that is geared towards productive investment and enhances productivity growth contribute to greater debt servicing capacity over time," Ms Diron said. in a statement.
"When the investment occurs, there is uncertainty about the degree to which it will effectively boost growth.
"In our assessment, we consider the nature of government spending and the likelihood that it will support growth over the medium term."
Ms Diron pointed out that ultimately, the overall level of debt is the key.
"Moody's sovereign ratings depend on the overall government debt burden and the government's capacity to service this debt. In the case of Australia, its general government debt burden is just under 40 per cent of GDP, in line with the median level of Aaa-rated sovereigns."
Both agencies have their own systems of accounting for both commonwealth and state debt that differ from the Commonwealth's measures.
