NSW and Victoria will be the economic losers of Covid lockdowns as Australia divides

The pandemic has exposed us as the Divided States of Australia and two states in particular are being economically ruined by Covid.

As the pandemic continues to impact parts of Australia, the ever present fault lines between our states are arguably clearer now than at any time in living memory.

Under more normal circumstances the rivalries existed below the surface, reserved for things like battles over how GST revenues are distributed or sporting clashes between teams from rival states.

But once upon a time before Australia was independent, the British colonies that would eventually come to make up our fair nation were rivals that were arguably just as bitter as those that define modern state politics.

Perhaps the most long lasting example of a colony vs. colony rivalry is the different gauges of railway chosen by the various states. Due to the differences in railway gauges passengers were required to change trains at some state borders, such as between New South Wales and Victoria at Albury/Wodonga.

In 1895 famed American author Mark Twain remarked that it was: “the oddest thing, the strangest thing, the most baffling and unaccountable marvel that Australasia can show … Think of the paralysis of intellect that gave that idea birth.”

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Back in the day you had to change trains at Albury and Wodonga. These days they just close the border altogether. Picture: NCA NewsWire / Simon Dallinger.

Yet, despite the at times problematic nature of the rivalries between the various states and territories, as a whole Australia has generally managed to avoid the disparate economic outcomes that have come to define parts of some nations, such as the United States.

For example, in terms of per capita GDP, the US state of Massachusetts is more than twice as prosperous as the state of Mississippi.

However, as lockdowns continue in New South Wales and Victoria, and an outbreak of the virus remains a threat in Queensland, several very different Australias are slowly emerging.

Even before the current round of lockdowns in New South Wales and Victoria began, a walk through Melbourne’s CBD or along a strip of shops in a heavily virus impacted area told a very different tale to other parts of the country.

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Closed shops in Elizabeth Street in Melbourne in August 2021. Picture: NCA NewsWire / David Crosling.

Now with the advent of a renewed lockdown in Greater Melbourne and a protracted lockdown in much of NSW, the idea of a uniform economic recovery being experienced across Australia is effectively dead.

In resource rich and virus free Western Australia, things could scarcely be better.

Recent near record high iron ore prices have seen the WA economy boom and have delivered an enormous windfall to the coffers of the McGowan government. As a result, WA has managed to record the only state budget surplus in the nation, as even states like Tasmania, which has avoided the worst of the virus so far, record large deficits.

But for NSW and Victoria, their budgets are drowning in a sea of red ink and weighed down by the ongoing cost of supporting households and businesses during lockdown.

In time, they will likely cut spending or look to raise further revenue in order to put their finances back on the path to a balanced budget. Prior to the current outbreaks NSW and Victoria were already looking to additional taxes and higher fees in order to begin the budget repair process.

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WA is thriving thanks to recent record high iron ore prices. Mt Whaleback iron ore mine. Picture: Getty.

Now, despite NSW Premier Gladys Berejiklian and Victorian Premier Daniel Andrews trading barbs over their respective handling of Covid outbreaks, they find themselves in a similar position.

In this new chapter for Australia, NSW and Victoria find themselves starting from behind.

Western Australia has streaked off into the lead as a result of the resources boom and a relatively virus free pandemic so far.

Meanwhile Queensland has been the beneficiary of the exodus of people from NSW and Victoria. Many Australians seeking warmer weather, cheaper housing and a refuge from the virus have made the move to the sunshine state.

The road ahead for Victoria and New South Wales is likely to be significantly more challenging.

Prior to Victoria returning to lockdown, the Commonwealth Bank (CBA) estimated that Sydney’s lockdown would cost the economy 2.7 per cent of GDP. To put that into perspective it’s a larger drop in national economic activity than the recession in the 1990s.

CBA also predicted that the Sydney lockdowns could result in up to 300,000 jobs being lost.

While tens of billions of dollars in support is likely to be provided throughout the duration of the various lockdowns, when contrasted with the unprecedented level of stimulus flowing through the economy in 2020, its likely to come up short.

For the households and businesses who already burned through their savings and/or superannuation during outbreaks last year, the support coming from the federal government and the states may not be enough.

As our divided nation attempts to recover from the still ongoing pandemic, the road to recovery may prove even more challenging than it did last year.

With the federal budget expected to be delivered in red ink for decades to come according to the government’s ‘Intergenerational Report 2021’, the more public rivalries between the states may be here to stay, as they compete for the federal government’s resources.

Going forward, it’s clear that New South Wales and Victoria are starting from the back of the pack, but with all the twists and turns that may lay ahead, who will be at the front in the years to come remains a mystery.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator