Is Melbourne, the world’s most liveable city, poised on a dangerous precipice?

There is an increasingly wide­spread view in Melbourne business circles that the world’s most liveable city is poised at the edge of a dangerous precipice.

The upside for health outcomes is matched by a catastrophic downside for business. Picture: Tony Gough

Melbourne apartment developer and rich lister Tim Gurner has a lot riding on the Victorian economy.

He has about $1.6bn in projects under construction, each of them supporting 500-600 jobs at their peak.

Gurner is passionate about his home city, saying he’s never been more confident about its long-term allure as a safe haven for an army of returning expats.

But when conversation turns to the state government’s attempt this week to curb a raging COVID-19 outbreak with tough stage 4 restrictions, the line almost crackles with tension, reflecting an increasingly wide­spread view in Melbourne business circles that the world’s most liveable city is poised at the edge of a dangerous precipice.

“Yes, this is a health crisis, but it’s also going to be one hell of an economic crisis,” Gurner tells The Weekend Australian.

“Obviously the Premier (Daniel Andrews) is under immense pressure after the hotel quarantine breakdown: he seems to be the spokesman for everything.

“But he never consulted with the construction industry about the lockdown and I’m really not sure why that is.”

Andrews announced his plan for a rapid shutdown of the nation’s fastest-growing economy on Sunday afternoon, with details to follow 24 hours later.

In the Premier’s words, the state would be put into “pilot light mode”, precipitating a mad scramble by businesses to understand the implications.

With Victoria accounting for 25 per cent of Australia’s GDP, many growth forecasts for the September quarter dipped into the red, raising the bleak prospect of three successive quarters of economic contraction for the first time since the 1982 recession.

A critical objective of lockdowns worldwide is to minimise people movement and the potential for large-scale exposure to a highly infectious virus.

At least in the Melbourne central business district, this appears to have been achieved, with the city’s network of 60 pedestrian sensors showing foot traffic plummeted on Thursday to just 10 per cent of pre-COVID levels a year ago.

Before the lockdown, up to one million people were moving around the city each day.

The sensor at the Flinders Street underpass, which normally registers 36,000 pedestrians a day, is down to 3600.

Illustration by Greg Sommer

Catastrophic downside

The upside for health outcomes is matched by a catastrophic downside for business.

While Gurner’s company is secure after a big cash inflow from completed projects, his frustration is amplified because construction is the lifeblood of the state’s economy, contributing 13 per cent of output and meal tickets for up to 400,000 workers.

Ominously on Wednesday, credit rating agency Standard & Poor’s slapped a negative watch on Victoria’s AAA credit rating, meaning there’s a 50:50 chance of a downgrade to AA+ in the next few months.

The state’s last downgrade from AA+ to AA was way back in October 1989, in a prelude to the deep economic winter of 1990-91.

To say S&P’s prognosis was gloomy is an understatement.

It projected a record budget deficit of $7.6bn for 2020-21, with debt forecast to spike by almost 50 per cent over the next three years from $64.5bn to $95bn.

All sectors of the economy would suffer for the remainder of this year and potentially beyond, raising the unemployment rate to levels not seen in decades, permanent closure for a large number of businesses, and a drastic reduction in population growth in the immediate future.

About the only positive message in the S&P report was that Victoria had strong financial management, a well-diversified economy and access to international markets which was expected to continue.

In a worst-case scenario, the Commonwealth was also likely to provide backstop support, as it did with an offer of a debt guarantee scheme in exchange for a fee in the global financial crisis, which the state ultimately did not need.

Andrews’ apparent determination to do all the heavy lifting himself, perhaps fanned by his role in the hotel quarantine disaster, was also on display in other critical sectors of the economy.

Tim Gurner

The Premier’s announcement on Monday that warehouses and distribution centres would have to slash their staff by 33 per cent prompted the Business Council of Australia to express serious concern about the impact on national grocery supply chains.

Frustration soon boiled over, leading to a telephone hook-up between key CEOs, including Woolworths boss Brad Banducci, and federal Treasurer and Melbourne-resident Treasurer Josh Frydenberg.

Contact was made with Victorian Treasurer Tim Pallas, who agreed to a 6pm telephone meeting on Wednesday night.

“Can I put on the record our thanks to Treasurer Frydenberg for acting on our concerns so quickly,” BCA chief executive Jennifer Westacott said in an email to her member companies.

With all tiers of government politically exposed to the chaos, Scott Morrison reminded everyone on Friday that the Andrews government had “complete and total control” for the state’s restrictions and its handling of the pandemic.

The Prime Minister said he didn’t want to offer public advice to Victoria about how to manage its response, despite his Ministers increasingly showing no such reluctance.

“I don’t see a great advantage in engaging in … engaging in some sort of public spectacle; I don’t think that would be good for public confidence,” Morrison said.

“Regardless of which way you vote, it doesn’t matter whether you’re a Liberal supporter of a Labor supporter, the virus certainly doesn’t discriminate and is seeking to cause its havoc wherever it can.

“So we need to continue to have a balanced response that looks at the economic and health issues.”

Sophisticated operators

Gurner, for his part, remains astonished that the construction industry was treated like an outcast, even as clear indications began to emerge several weeks before Andrews started rolling out his hard lockdown on Sunday that such a drastic move was under active consideration.

There are only a handful of major developers and builders in Victoria, including Gurner, Multiplex, Hickory, L.U. Simon, Probuild and Crema.

Gurner began the ring-around last Monday and had spoken to all his counterparts — bar one — by the next day.

“No one got any calls from the government,” he says.

“These aren’t start-up guys; they’ve all run their businesses for a long time and it would have been easy for the government to get a concise and clear view about which sites should or should not have continued.”

The top-tier firms, according to Gurner, are sophisticated operators, running temperature checks on workers, enforcing mandatory wearing of face masks, and encouraging the use of on-site hand sanitiser.

With much of the work done outdoors, COVID-19 incidence is much lower than other sectors like meat packing.

The construction industry managed to secure some concessions from the government on Thursday after some intense lobbying.

Master Builders Victoria chief executive Rebecca Casson said the changes ensured that most of the industry could continue to function “in a modified form”, while contributing to the overall global of restricting movement across the community.

Most welcome was the flexibility for trades people and supervisors to move between sites — up to three a week.

However, the restriction on large commercial construction sites to 25 per cent of their baseline workforces would have a significant impact.

Gurner agrees, saying his company “can’t operate at 25 per cent” — an artificial limit which made little sense and was designed to protect the jobs of union-affiliated workers.

He says a typical site for one of his projects would be 6000sq m, sufficiently large for 100 amply distanced workers and excavators to dig out the base.

“The theory that that’s not OK is very strange,” the businessman says.

He contrasts Victoria with the approach in New Zealand, where Jacinda Ardern consulted widely before imposing an even tighter level 4 lockdown.