SYDNEY (Reuters) - Standard and Poor's on Friday said it would be watching the Australian government's mid-year review in December and its 2017/18 budget next May to see improvement on tackling the deficit when deciding whether to downgrade its rating.

The agency on Thursday changed Australia's outlook to negative, saying there was a one-in-three chance of a downgrade in the triple A rating within the next two years.

In a web cast on Friday, S&P analysts singled out the mid year review and the budget as major milestones, and emphasized the government had to stick to plans to return the budget to balance by the 2020/21 financial year.

(Reporting by Wayne Cole; Editing by Shri Navaratnam)