The economic challenges ahead

Having the world's best economy should be great news. But it does present challenges to a new government.

Australia's incoming ministry faces three awkward realities. First, they must now admit that some of their assertions about the state of the economy in recent years may have been exaggerations. There is no "budget emergency". Australia is not "drowning in debt". And the path to surplus during the worst downturn since the Great Depression will be uphill.

Second, as they are now adopting almost identical broad economic policies as Labor – stimulus spending, continuing deficits and increasing debt – they will be judged as inconsistent.

And, thirdly, with Australia's economy leading the world, there is only one direction it can go in global rankings.

According to Treasurer Joe Hockey before the election, "the cupboard is bare". He insisted that his plans alone would re-stock the larder.

How will we know if he succeeds? Easy. By making time comparisons on the key measures.

So what is the actual state of the economy Hockey has inherited?

1. Income

The International Monetary Fund (IMF) measures Australia's income per person at US$64,157 for 2013. This places Australia fourth among the IMF's 35 wealthy nations.

2. Wealth

According to September's Credit Suisse global wealth report for 2013, Australia's wealth per adult is US$402,600, the second highest in the world after Switzerland.

"Even more strikingly, [Australia's] median wealth of $219,500 is the highest in the world."

3. Economic growth

Gross domestic product (GDP) is expanding at an annual rate of 2.6%, currently the 5th best performance in the Organisation for Economic Cooperation and Development (OECD). Australia is the only OECD country to have had continuous growth for 22 years.

4. Employment numbers

The Australian Bureau of Statistics (ABS) records the total workforce in September as 11,645,800, just below the all-time high of 11,658,300 in June. The increase since Labor took office in 2007 is 943,000.

5. Employment participation

Defined as the number of people employed or looking for work as a percentage of the total population, participation in September was 64.9%.

6. Unemployment

Australia's jobless has remained reasonably steady through the global crisis which has seen disastrous increases elsewhere. For the last 57 months the rate has ranged between 4.9% and 5.9%. September's level was 5.6%.

7. Interest rates

Australia's September rate was 2.5%, the lowest in living memory. This is down from 6.75% when Labor won government in 2007.

8. Inflation

The inflation rate was 2.2% in September, having stayed within the range 1.2% to 2.5% for the last seven quarters.

9. Taxation

The total tax take in 2012-13 was 22.2% of GDP, down from a high of 24.2% between 2004 and 2006. Income tax was down to 16.2%, from the 1999-2000 peak of 17.6%.

10. Borrowings

Australia's general government net borrowings were just 13.74% of GDP when Labor left office. In the OECD only the four small Scandinavian countries and Estonia have lower debt.

The IMF projected net debt under Labor would have risen next year to 14.54%, then declined steadily to 10.1% in 2018.

11. Deficit

The final general government underlying deficit for 2012‑13 was $18.8 billion, just 1.2 per cent of GDP, one of the lowest in the developed world.

This is quite a turnaround from last year's deficit of $43.4 billion, or 2.9% of GDP.

12. Credit ratings

Since November 2011 Australia has had triple A sovereign debt ratings with all three agencies, Fitch, Moody's and Standard and Poors.

13. Productivity

Labour productivity has boomed recently, rising for ten consecutive quarters to an all-time high of 104.6 index points.

14. Economic freedom

This year's Heritage Foundation survey ranks Australia's economic freedom first among the OECD nations and third in the world behind merchant city states Hong Kong and Singapore. Measuring freedom from government obstruction in starting and running businesses, Australia's score was 82.6.

15. Business profits

Gross operating profits for the June quarter were $73.98 billion, according to the Australian Bureau of Statistics (Table 15, line 52, column AG). Profits have not been below $70 billion since March 2010.

16. Business investment

This has peaked at over 18% of GDP recently, the highest level in more than 50 years.

The ABS shows new capital investment (Table 1E) at $26.8 billion in June. It has been above $25 billion each quarter for the last six quarters. The highest during the Howard years was $11.2 billion.

17. Foreign exchange reserves

These are the assets held or controlled by the Reserve Bank, usually in gold or foreign currencies. The September level was A$52,971 million, up from $32,718 million in 2007.

18. Currency value

The Aussie dollar fluctuated between 89 and 93 US cents in the two months before the September election, between 57 and 62 British pence and between 67 and 72 Euro cents.

19. Balance of trade

From an all-time high surplus of A$2,717 million in June 2010, the balance has slipped into deficit recently due to falling export values and rising capital imports.

In August the trade deficit was A$815 million.

20. Terms of trade

This reflects the amount of imported goods an economy can purchase per unit of exported goods. Hence the higher the better.

Australia's level was 91.5 index points in the second quarter of 2013, down from the all time high of 106.5 in 2011, but well up on 77.9 when Labor took office.

So that's the economy the Coalition has inherited. Yes, it has its weaknesses. But fewer than in any earlier period.

Using these variables to compare countries reveals Australia as clear global leader.

The top twelve economies at June 2013 were:

1. Australia

2. United Arab Emirates

3. Singapore

4. Switzerland

5. China

6. Norway

7. Canada

8. Bahrain

9. Luxembourg

10. New Zealand

11. Hong Kong

12. Chile

This is a significant shift from 2007 when the first Rudd Government came to power on the eve on the global financial meltdown.

Rankings then were:

1. Iceland

2. Singapore

3. China

4. United Arab Emirates

5. Luxembourg

6. Switzerland

7. Norway

8. Taiwan

9. Hong Kong

10. Australia

11. Netherlands

12. Denmark

How the economy moves henceforward we can now measure against the above twenty benchmarks.

It will be possible to assess claims like this from Tony Abbott in a recent address: "Based on previous experience, we are confident that [our] changes will produce a million new jobs within five years … unlike the anaemic job creation record of the past six years."

We shall see.