Lockdown will be a drag on economic recovery

The estimated cost of more than $100 million a day for Victoria’s Covid-19 lockdown is a wake-up call on the need for urgent action by all levels of government to fix the now obvious gaps in the nation’s pandemic response. If, as seems likely, the fourth lockdown in Victoria is extended beyond Friday, the financial cost to individuals and businesses will quickly become unbearable. An extended lockdown will put further pressure on the federal government to extend support measures. It is a difficult balance between showing compassion to a state in need and the moral hazard of bailing out a government that seems unable to learn from past failures. Scott Morrison showed his compassionate side on Tuesday when he told the partyroom the situation in Victoria could befall any state at any time. The Prime Minister has resisted the blatant political stance of his opponents, who have tried to shift the blame for the lockdown to the commonwealth.

During question time in federal parliament, opposition Treasury spokesman Jim Chalmers said Victoria would not be in lockdown were it not for the Morrison government’s “failure on vaccines and quarantine”. He accused Josh Frydenberg of abandoning his home state in its “hour of need”. That shameless partisan attack does not accord with the facts. The Treasurer has stood firm in rejecting demands from Victoria for additional funding. He said the commonwealth had already provided more than $45 billion to families and businesses across Victoria during the pandemic. This is more on a per capita basis than any other state. Mr Frydenberg said Victoria was “not the only state that has gone into lockdown after the end of JobKeeper”, pointing to Brisbane and Perth’s stay-at-home orders in March and April.

For business and for workers forced to stay at home, however, the cost of the lockdown continues to mount. Treasury officials told Senate estimates on Tuesday that modelling of the second-wave lockdown in Victoria suggested the economic cost was $100 million a day. That cost is based on a hit to gross domestic product of about two percentage points in the September quarter, which is equivalent to about $9 billion, or $100 million a day.

Accounting firm KPMG has estimated the second lockdown cost the Victorian economy about $125 million a day. A similar cost is estimated for the current lockdown. If it continues, the lockdown will affect the economic rebound continued in Tuesday’s national accounts figures, which showed a small rise in March-quarter GDP.

Uncertainty about the virus and the impact of lockdowns was a factor in the Reserve Bank’s decision on Tuesday to keep the cash rate steady at the historic low of 0.1 per cent. RBA governor Philip Lowe said ongoing uncertainty in the economy included significant outbreaks of the virus. Similar uncertainty is being touted by the OECD. As Tom Dusevic reported on Tuesday, the OECD expects global output to grow by almost 6 per cent this year but says economic recovery remains hostage to new variants of Covid-19 and sporadic border closures and shutdowns. The OECD has upgraded its view for Australia, with GDP forecast to grow by 5.1 per cent this year and 3.4 per cent next year, compared with its March estimates of 4.5 per cent and 3.1 per cent, respectively. The OECD has called on Australia to speed up its vaccination rollout or risk slower growth. Vaccination remains the best line of defence for individuals and the economy. Every effort must be made to get the rollout right.