The past several budgets have been predicting a shift from mining to non-mining investment, as fundamental to the essential "transition" of our economy driven by a resources and construction boom, to whatever. While this process is underway, it is being delayed significantly.

Also of concern was the continued fall in our terms of trade (1.9 per cent), and the confirmation of the recently recorded deflation in the CPI.

So, while measured overall growth looks OK, our underlying economy is still quite weak, and remains significantly exposed to the prospect of weak global growth and trade, especially China, which is probably struggling to achieve 5 per cent growth, far weaker than the Chinese would have us believe, with a mounting risk of a debt crisis.

Total Chinese debt, public and private, is probably globally the highest relative to GDP, and the risks are now being recognised. For example, a recent report by Moody's drew attention to the corporate debt overhang. Where 16 per cent of the debt of Chinese issuers rated by them had a "negative bias" at the end of 2015, the percentage is now some 69 per cent.

There is also considerable concern about the likely consequences of further increases in interest rates by the US Federal Reserve, not only for the sustainability of the US recovery, but also for bond, property, currency, and stock markets, and importantly for the emerging economies, most of which are in or near recession, and that collectively have some US$18 trillion of foreign currency denominated debt.

More broadly, it is difficult for monetary authorities globally to disengage from the era of near zero, or negative, interest rates. They are in unchartered waters, having no relevant historical experience on which to draw.

Importantly, there has also been increased recognition in recent days of the significance of some of the consequences of such low interest rates – on debt exposures; on the stability of banks; for the elderly and those living on their savings having to cut their spending; the discouragement of the youth to save; the push for investors to (recklessly) search for "yield"; and the undermining of personal responsibility.

Global policy authorities mostly have very little monetary or fiscal capacity to whether further significant global shocks, be they economic or geo-political.


This election campaign has seen both sides commit to significant increased spending, on top of huge unfunded commitments to spend on schools, health, defence, the NDIS, and the NBN and other infrastructure, stretching through the 2020s.

Not surprisingly, given a recognition that claimed budget repair has been very much "assumed" by optimistic forecasts, both sides are conceding that reality may need to be addressed post election. Moody's and others will undoubtedly have a say here too!

Chris Bowen has admitted that he will issue "honest" forecasts (done by the Parliamentary Budget Office rather than Treasury) and bring down a mini-budget within 100 days of assuming government, and Scott Morrison has spoken of "budget recalibration".

Buckle up.

John Hewson is a former leader of the federal Coalition.