FINANCE ministers and central bank governors from the world’s biggest economies gathered in Bali last weekend for a G20 discussion about the state of the world economy and to determine priorities. It was against the backdrop of economic tailwinds turning into headwinds and the challenges that poses for global growth.
With trade tensions between the US and China on the rise, private and public debt levels at a record high and the normalisation of US monetary policy driving capital outflows from, and putting currency pressure on, emerging economies, there is more uncertainty about the global economic outlook than a year ago.
The recent volatility in the markets reflects an appreciation of these developments and we can expect more ups and downs in the period ahead. What was clear from the discussion is that while the financial system is more resilient since the GFC with transparency, accountability and capital adequacy ratios enhanced, there is not a lot of policy space to respond to another downturn.
With interest rates low and debt levels high, monetary and fiscal policies are constrained. What was recognised by those at the meeting was that governments now need to rebuild their fiscal buffers and capacity to act. In other words, “fix the roof while the sun is shining”.
In this respect, Australia is on the right path as a result of the work undertaken by the Coalition government over the last five years. Our net debt to GDP peaked at 18.6 per cent last year, compared with other advanced economies like the US, UK and France which are around 80 per cent and Japan at 150 per cent.
We are on track for a balanced Budget in 2019-20 a year earlier than expected and our Budget deficit for 2017-18 was the lowest in a decade at 0.6 per cent of the GDP. That compares with the UK and France where deficits remain three and four times bigger as a percentage of GDP.
Federal pending growth is at the lowest level for 50 years and the number of working aged Australians on welfare is at the lowest level for 25 years. With nearly 1000 jobs being created a day, more young people got a job last year than anytime on record.
Australia is one of only 10 countries with a AAA credit rating from the three leading agencies. S&P recently praised Australia for its “fiscal prudence” and “better Budget performance”. Indeed, in my meeting in Bali with the OECD Secretary-General Anguel Gurria, he praised Australia’s economic growth, which he attributed to “good, sound macro-economic policies”, noting “solid growth will continue”.
There is still more to be done. This is why we are continuing with our economic reform agenda, which involves tax relief for about three million small and mediumsized enterprises, which Labor, after ridiculing, has belatedly supported. We have legislated income tax relief that will see 94 per cent of taxpayers pay no more than 32.5c in the dollar.
New trade agreements with Japan, Korea, China and the 11 nation Trans-Pacific partnership have created new opportunities and help to sustain one in five Australian jobs.
Our $75 billion infrastructure spend will ease congestion in our cities and get product more quickly from the paddock to the plate, and includes projects such as the Melbourne airport rail link, the upgrade to the Bruce Highway and the inland rail project. Not to mention Snowy 2.0, the biggest ever defence industry program and our record spending on health, education and disability support.
It is because of this economic plan that consumer and business sentiment is strong and the economy is growing at 3.4 per cent through the year, its fastest rate since the height of the mining boom. But it is imperative that we do not put in jeopardy the trajectory we are on and allow Labor to imperil the fiscal repair job we have underway.
WITH about $200 billion of new taxes and plans to turn union law breakers into union law makers, Labor’s tax-and-spend approach will not deliver the economic discipline required to bring the Budget back to surplus. There is no better example than Labor’s retiree tax, which Treasury has costed as stripping $45 billion from the pockets of those who have saved for their own retirement. New analysis shows that 900,000 individuals, 200,000 self-managed superfunds and about 2000 superfunds will be affected by Labor’s policy to abolish cash refunds for excess franking credits.
At a time when we should be fixing the country’s economic roof, Labor is opening up new holes.
As the world’s finance ministers readied themselves at last week’s G20 meeting for the economic challenges that lie ahead, Australians can be confident about their future, but never complacent. Our economic plan is working and the results are there to see, but the economy cannot risk a return to Labor’s high-taxing, high-spending, confidence-sapping approach.
Josh Frydenberg is the Federal Treasurer.