Over the weekend, Washington played host to the annual meeting of international finance ministers and central bank governors against the backdrop of a “synchronised slowdown” in the global economy with the IMF downgrading its global growth forecast to 3 per cent for 2019.
The mood was serious but not panicked as governments the world over navigate a new paradigm of low inflation, low unemployment and low interest rates.
Much is made of our historical low cash rate of 0.75 per cent but we are hardly unique.
More than 50 central banks have cut rates this year, with both Europe and Japan experiencing negative long-term interest rates, meaning in effect you pay them to keep your money.
The trade dispute between the US and China hovers over the global economy like a dark cloud.
With tariffs slapped on more than $700bn of goods, the impact on confidence and investment has been profound.
Growth in global trade volumes has fallen to 1 per cent, investment decisions have been deferred, capital flows have slowed and the IMF estimates that if the dispute is left unresolved it could reduce growth by 0.8 per cent.
While there are signs tensions may be thawing and a trade truce might be a possibility, nobody is calling it yet.
The language, however, from both the Americans and the Chinese was more positive.
With one in five Australian jobs related to trade, what happens globally matters locally.
The Australian economy though continues to perform comparatively well. We are as well placed as any to respond to external shocks.
The IMF forecasts our economy to grow 2.3 per cent next year — ahead of forecasts for other developed economies such as the US, Britain, Germany, France, Canada and Japan.
Our debt-to-GDP ratio is about 20 per cent, a quarter of that in the US and Britain and less than a third of the OECD average.
Australia’s labour market remains strong and for the first time, there has been jobs growth every month for three years.
Employment growth is more than three times what we inherited and more than double the OECD average.
Our AAA credit rating has been maintained, welfare dependency is at a 30-year low, we have a current account surplus for the first time since 1975 and after 11 years the budget is back in balance.
As Australia’s most successful treasurer, Peter Costello, said recently, on objective indicators ours is a “good economy”.
But we cannot be complacent. Nor can we afford to be derailed from the course set in the budget.
Tax cuts, targeted spending to boost productivity and a budget surplus were commitments we took to the Australian people.
We do not see a budget surplus as a trophy to put on the table, rather it’s about paying down Labor’s debt to reduce our $19bn-a-year interest bill while building resilience to create fiscal flexibility.
To put our interest costs in perspective, that is about what the commonwealth spends on schools and more than double our childcare payments.
Surpluses are hard to achieve, otherwise every government before us would have got there.
As the Business Council has noted, achieving a surplus is not a “bookkeeping exercise” but something much more significant, which “restores confidence in the stewardship of the nation’s finances” and “will make the country stronger”.
So we must stay the course and resist calls for kneejerk spending.
It’s not the global financial crisis or anything like it.
When Labor invokes the language of the GFC, as Anthony Albanese did last week and then went on to compare the Australian economy to Greece, the Labor Party simply exposes itself as the panic merchants and economic neophytes that they are.
After proposing $387bn of higher taxes that would have hit the economy from July 1, Labor has the gall to call for tax cuts that they opposed to be brought forward.
What the economy needs is not pink batts, cash for clunkers and cheques to dead people that Labor became notorious for, but rather a laser-like focus on the productivity agenda. It is reforms on the supply side that will provide the uptick required to economic growth.
Infrastructure, deregulation, competition and industrial relations reforms are some of the initiatives the government is focusing on.
With these structural reforms the private sector, which employs nine out of 10 working Australians, will have incentive to invest, innovate and grow.
Business investment, which represents 12 per cent of economic output and is responsible for almost two thirds of Australia’s labour productivity growth over the past 30 years, is an important way to generate near and long-term growth.
Reforms in these areas don’t always cost the budget bottom line, but they certainly help the bottom line by creating a stronger economy.
This is why we put productivity on the agenda at the state treasurers’ meeting. The potential pay-off for the economy is huge.
If we can return productivity growth to our long-run average of 1.5 per cent, then the economy will be $70bn bigger and someone on an average full-time income will be $3000 a year better off by the end of the decade.
The global economy and Australia’s economy face headwinds, but it’s no reason to squander the economic gains we have made over six years.
It has taken this time to clean up the fiscal mess we inherited and get the budget back on track.
Disciplined economic management means we can reduce taxes, pay back debt so that future generations don’t have to pick up the tab, and direct spending to areas where it’s needed most. It’s allowed us to significantly increase funding for mental health, drought support, the NDIS, hospitals, schools and defence.
This is the pathway to a stronger economy, stronger community and a more secure future for all Australians.
Josh Frydenberg is the federal Treasurer.