Josh Frydenberg: Let’s get down to work on recovery mission
As we cross the bridge to recovery, Australia has the advantage of having made real progress in suppressing the spread of the virus, but we need to get Australians back into a job as quickly as possible, writes Josh Frydenberg.
Opinion
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On Friday, the National Cabinet will meet. It comes at a critical time for the nation as our focus turns to the recovery.
The Prime Minister, premiers and chief ministers will consider options for the easing of restrictions over the coming months.
We need to get Australians back into work and back into a job as quickly as possible.
For every extra week the current restrictions remain in place, Treasury estimates we will see close to a $4 billion reduction in economic activity from a combination of reduced workforce participation, productivity, and consumption.
This is equivalent to about what four million Australians on the median wage would earn in a week.
Australia has made great progress on the health front, flattening the curve and, in doing so, limiting the spread of coronavirus.
While, tragically, 97 people have died in Australia from coronavirus, we account for about 0.04 per cent of total global casualties.
Adjusting for population, the death toll in the United Kingdom is more than 110 times that of Australia, in France it is more than 100 times, and in the United States it is more than 50 times.
At the same time, the government has implemented an unprecedented economic response to the crisis, with support for the economy totalling $320 billion, or 16.4 per cent of GDP.
This includes the historic $130 billion JobKeeper wage subsidy that will support millions of Australian workers, with the first payments flowing this week.
Notwithstanding our progress to date on the health front, and the unprecedented scale and scope of our economic response, our economic indicators are going to get considerably worse before they get better.
The economic shock will be broad.
GDP is expected to drop significantly, with Treasury forecasting a fall of more than 10 per cent in the June quarter, the equivalent of $50 billion.
This arises as a result of the direct impacts of the health restrictions, absenteeism from school, reduced demand for our exports and an overall fall in consumer and business confidence.
Treasury analysis shows that under current restrictions more than 300,000 adults are unable to work as a result of kids not being at school.
Treasury has also estimated that under current restrictions, the unemployment rate will peak at about 10 per cent. But for the JobKeeper package, unemployment could have risen to 15 per cent.
History shows the longer people are unemployed, the harder it is to get a job.
In the early 1990s, the unemployment rate increased by five percentage points over three years, but took seven years to get back to its pre-crisis level.
As has been remarked, unemployment went up in the elevator, and went down by the stairs.
In the current coronavirus crisis, it is expected the unemployment rate will go up by about five percentage points in just three months, let alone in three years.
It underlines the importance of getting people back to work as soon as possible to avoid the long-term economic and social impacts from high unemployment.
The worsening economic picture is not unique to Australia. Indeed, many countries are facing considerably more challenging circumstances.
The economic shock the world is now confronting dwarfs the global financial crisis.
During the GFC, the global economy contracted by just 0.1 per cent in 2009, but according to the IMF’s most recent forecast, there will be a three per cent contraction in global growth in 2020.
In the last four weeks alone, 30 million Americans have filed jobless claims, which is equivalent to almost 19 per cent of the United States’ labour force.
China’s economy has also been hit hard with GDP falling by 9.8 per cent in the March quarter, the first quarterly drop on record.
In Italy, France and Spain, they have also seen the biggest quarterly GDP falls on record.
As we cross the bridge to recovery, Australia has the advantage of having made real progress in suppressing the spread of the virus without having to resort to a full lockdown as has been the case with some other nations.
Significant sectors of our economy such as agriculture, mining and construction have been able to adapt to the new health restrictions and, in most cases, continue to operate.
As has been characteristic of our response to this crisis, we will continue to be guided by the expert health advice and seek to ease restrictions in a way that minimises the health risk and maximises the economic activity.
The crisis has seen the very best of Australia.
From our brave health care professionals working tirelessly on the frontline, to the public at large who have heeded the advice, our nation is now in a position envied by many.
Effective co-operation through the National Cabinet, guided by expert health and economic advice, has given rise to a unity of purpose across geographical and political lines usually reserved for wartime.
While the shadow of the economic shock created by this crisis will be both profound and long lasting, we can remain optimistic about our future.
Josh Frydenberg is the Federal Treasurer