--Australia Treasurer says grave consequences if U.S. doesn't address "fiscal cliff"
--Wayne Swan says Group of 20 concerned about risk of U.S., Europe policy inaction
--Mr. Swan says G-20 must focus on jobs and growth
By Robb M. Stewart
MELBOURNE--The looming "fiscal cliff" in the U.S. poses the biggest threat to a nascent global economic recovery, Australian Treasurer Wayne Swan said Thursday, as he urged the eventual winner of this month's U.S. election to prioritize dealing with it.
"The global economic consequences could be grave indeed if action is not taken after next week's election to address the looming fiscal cliff," Mr. Swan said in a speech at an economic conference in Melbourne.
"Trillion dollar deficits are not sustainable and quantitative easing is not a long-term solution."
A series of tax increases and spending cuts are mandated to begin next year unless Congress strikes a deal to avoid them, a situation that has become known as the "fiscal cliff" in the U.S.
The independent Congressional Budget Office has estimated that the cliff, left unattended, could see the U.S. economy suffer an annualized contraction of 2.9% in the first half of next year and a jump in unemployment, which Mr. Swan said would drive the U.S. back into recession and "strike a savage blow" to the fragile global economic recovery.
Members of the Group of 20 industrial and developing nations, who are set to gather in Mexico this weekend, are concerned about the risk of policy inaction in the U.S. and in Europe, Mr. Swan said.
He plans to call on his G-20 counterparts to focus on jobs and growth as they work to get their economies on track.
The G-20 meeting must focus on medium to long-term fiscal plans that set priorities to improve productivity and competitiveness and restore market confidence, he said.
"In Mexico, I will be imploring my colleagues to support jobs and growth in the near term while ensuring their medium-term budgets are put on a more sustainable footing," he said, adding a global growth rate of about 3% was insufficient.
The treasurer leaves Friday for this weekend's G-20 meeting in Mexico City, after which he plans to visit Washington.
In his speech, Mr. Swan also said Australia's economic fundamentals remain sound despite the sharp fall recently in prices for iron ore, coal and other commodities that underpin exports.
"Maintaining a strong economy and sound fiscal policy has seen increased appetite to invest in Australia," Mr. Swan said. "Where we were once seen as an optional investment destination, Australia is now seen as a necessary part of any portfolio, whether it be private or public investors."
The economy, which has been cushioned from the worst of the global economic woes due to Asia's booming demand for natural resources in recent years, has showed signs of strain in recent months as a slowdown in China's economic growth has weighed heavily on minerals prices.
Australia's government last month unveiled billions of dollars in additional savings to keep it on track for a promised budget surplus as budget revenue has fallen. At the time, it said tax receipts this fiscal year would be 4 billion Australian dollars (US$4.1 billion) lower than previously forecast, prompting it to narrow the projected surplus to A$1.1 billion from May's estimate of A$1.5 billion.
Mr. Swan said given the current economic conditions, there is now more room to run lower interest rates than in the past.
Concern that the cutbacks will aggravate economic weakness could prompt the Reserve Bank of Australia to cut interest rates more aggressively than it might have intended. That would exert downward pressure on the Australian dollar, which continues to trade near historic highs.
Write to Robb M. Stewart at [email protected]