By Nick Mann | 2 November 2012

Finance ministers from the Group of 20 leading nations meeting this weekend in Mexico need to set out ‘credible’ fiscal plans to improve economic productivity and restore market confidence, Australia’s treasurer said last night.

Speaking in Melbourne, Wayne Swan hailed the ‘good progress’ being made in Europe towards encouraging jobs and growth and putting medium-term budgets ‘on a more sustainable footing’.

But, he said that ‘we haven’t yet set a pathway for a credible, sustainable global recovery’, adding that a global growth rate of less than 4% would not ‘cut the mustard’.

‘That kind of growth is not enough to make inroads into reducing the stubbornly high rates of unemployment in much of the developed world, and so is not a sustainable path for our future,’ Swan said.

‘Beyond jobs and growth my focus at this G20 meeting will be on credible medium- to long-term fiscal plans – plans that set fiscal priorities in ways that improve productivity and competitiveness, and that restore market confidence.’

Swan raised particular concerns over the ‘grave’ consequences for the global economy if the US fails to avoid the combination of automatic tax increases and spending cuts set to take effect in January 2013 unless political agreement is reached on a new budget plan – the ‘fiscal cliff’.

The US Congressional Budget Office has said the fiscal cliff would send the country’s unemployment rate up from its current level of just below 8% to 9% by the end of 2013 – putting two million people out of work.

‘A reversal of job growth such as this would have enormous human and economic costs,’ Swan said. ‘This would not only drive the US economy back into recession, but would strike a savage blow to the recovery in the global economy.’

He noted, however, that even if the fiscal cliff was averted, the US would still need a ‘sustainable longer-term fiscal strategy’. ‘Trillion dollar deficits are not sustainable and quantitative easing is not a long-term solution,’ he explained. ‘So whoever wins the presidential election in less than a week's time, and whoever controls the Congress, will have choices to urgently make, and from those choices will flow big consequences for their country and for the global economy.’

Swan contrasted the budget position in the US and other G20 countries with that of Australia, which he said was still ‘on track’ to deliver a budget surplus in 2013 and had public finances that were ‘among the strongest in the developed world’.

In September, the International Monetary Fund said Australia had the fiscal room to delay its return to surplus if the global economic situation deteriorated to the extent that it had to increase public spending.

And, in yesterday’s speech Swan said that while the projected surplus for 2012/13 had narrowed since May’s budget speech, achieving this goal was not the government’s only goal.

‘As important as the surplus is, it's also the pathway you're on that matters to markets and the international community, as well as our ability to adhere to the rules we set ourselves during the depths of the crisis,’ he said.