The budget mantra of "jobs and growth" was a noble sentiment. But as a strategy, it could well be undermined by global forces that conspire to push the deficit deeper into the red, writes Ian Verrender.

They've been raising white flags almost everywhere.

Across the globe, central bankers are quickly running out of ammunition in their quest to combat deflation. On Thursday, it was Mario Draghi's turn.

After prices went south again in April, the European Central Bank issued a statement that "underlying inflation has not gathered upward momentum since last summer" with little likelihood of any recovery for the next few years.

That's despite the bank throwing the kitchen sink and the cutlery at the problem. It is now more than 14 months into its unprecedented money printing program which, at the start of this year, was ramped up from E60 billion a month to E80 billion.

Japan, with an even more radical money printing policy, dipped into deflation once more late last year and fears are rising that it again is poised to plunge into a deflationary cycle. The nascent recovery in America also appears tenuous with recent growth and inflation data weaker than expected.

The malaise, it seems, has spread to these shores. A fortnight ago, Australian inflation turned negative, confounding almost all the pundits, in a development that forced the Reserve Bank on Tuesday to upstage Scott Morrison's first budget by cutting interest rates even deeper into record territory.

The budget mantra may have been "jobs and growth". Fine words and a noble sentiment. But as a strategy, it could well be undermined by global forces that conspire to push the deficit deeper into the red and see our debt problems escalate into the future.

For decades, governments around the world have taken growth as a given. While there have been periods of recession, depression even, there always has been a clear pathway to recovery, albeit often one paved with misery.

Economists now are beginning to question whether the past century of economic growth was an aberration. After all, there was no such thing as economic growth prior to the industrial revolution.

A couple of years back, US economist Robert Gordon raised the gloomy possibility that the globe may revert to economic stagnation in a paper titled: Is US Economic Growth Over?

It created, not surprisingly, enormous debate. Most of his detractors argued that the more likely scenario was that America and the world could settle at a lower long term growth rate than we have witnessed in the past century.

Even that poses problems. For growth has helped the world solve two major problems. First, it has allowed governments to resist raising taxes to fund ever more demands for services. Second, it has mitigated tension between socio-economic classes. If everyone's wealth is rising, there is less likely to be conflict between rich and poor even when the wealth gap is widening.

Last week's budget highlighted a fundamental principle in current Coalition philosophy; that while the mix of taxes should change, the overall tax burden should not increase. It's certain to be a prominent feature of the election campaign.

But how sustainable is that principle? As one of the most heavily trade-exposed nations on earth, global economic trends have a habit of working their way into our economy relatively quickly. Should global growth continue to sputter, declining tax revenue will put the budget under even greater pressure. Eventually, we will need to pay more, or close off more of the loopholes, to balance the books.

Just like last year, and the year before that and all the years back to 2009, our budget forecasts on debt and deficits have been thrown into disarray within months, largely because Treasury's growth forecasts failed to materialise.

It's happened again this year with a $5 billion deterioration from Joe Hockey's $35 billion deficit estimate last May.

Ever the eternal optimists, growth is forecast to surge within the next few years, particularly nominal GDP - the number that dictates how much tax revenue the government will receive - soaring to 5 per cent in the next few years from a mere 1.6 per cent last year.

What are the chances of that happening? If you take gloomy prognostications from Europe, Japan and the US into account, the odds at this stage appear pretty slim.

Robert Gordon's paper, written nearly four years ago, was dismissed by many as a typical response to the after-effects of a crisis. Similar arguments had been made in the aftermath of the Great Depression. But the growth problems he highlighted appear to be becoming entrenched.

Last year, management consultancy McKinsey put its weight behind some of Gordon's themes, arguing that without a dramatic lift in productivity, global economic growth would halve in the next half century.

Central to Gordon's argument was that innovation - the great driver of productivity - was "battering its head against the wall of diminishing returns".

Power and transport revolutions along with social revolutions that allowed women into the workforce combined to boost productivity and lift living standards. More recently, having wrung as much as possible out of the technology boom, productivity globally has been on the wane. And with a wired up globe now able to easily shift work to developing nations, wages in rich countries are unlikely to gather momentum.

The last point seems to ring true. America has seen a strong recovery in employment since the dark days of 2009. But wages growth has been tepid at best and in many industries, non-existent.

The trend is similar here. Despite the mining investment collapse, employment has been much stronger than anticipated. But Australian wages growth is the lowest on record, which only serves to highlight the farce behind last week's lift in the tax bracket. It was not about saving middle income earners from the evils of bracket creep. It was about delivering a tax cut to the well off.

Whether a new era of innovation saves the global economy and lifts productivity remains to be seen.

What we do know is that central bankers globally are in a state of mild panic. The Law of Diminishing Returns - a basic economic construct - is wreaking havoc with their recovery plans. The more shots they fire, the less effective they become.

China has piled on huge amounts of debt in the past year in an effort to avoid a hard economic landing. The US Federal Reserve has pumped almost $US4 trillion into the economy via its money printing program since 2008, when its balance sheet stood at just $US800 billion.

Japan's money printing is off the charts. It now stands at Y4.05 million hundred million. (Could that be gazillion?)

Japan has now pushed the limits of money printing, or quantitative easing as it is called in polite circles, to the point where it is running out of Japanese government bonds to buy.

All to no avail.

Bold statements and promises about growth make catchy electioneering slogans. Delivering on them will be far more difficult.

Ian Verrender is the ABC's business editor and writes a weekly column for The Drum.