Time for optimism; but recovery will be a struggle

The fall in Victoria’s daily total of new COVID-19 cases to 14 on Sunday came at a good time. As spring warms up our second-largest city, Melburnians are eager to be out and about and the state is “a bit ahead of schedule’’ on the road to recovery, as Premier Daniel Andrews said on Sunday. Mr Andrews is not about to risk hard-won gains. But, sensibly, he has left open the option of bringing forward the easing of some restrictions. He would do well to start with Melbourne’s curfew. While Europeans gear up for a second major wave of the pandemic, Australians are in the relatively fortunate position of governments and business increasingly focused on opening up the economy.

The JobKeeper wage subsidy will be phased back from $1500 to $1200 per fortnight next week. But as Scott Morrison told the ABC on Sunday, the October 6 budget would include new measures, “which are going to be pro-boosting aggregate demand in our economy”. Income tax cuts could be brought forward with boosts to the pension, infrastructure and manufacturing. For some, such measures will be a lifeline.

The big losers as JobKeeper unwinds will be “mum-and-dad’’ businesses, with collateral in the form of the family home. During the pandemic, these enterprises have been protected by federal government changes that massively lifted the threshold for creditors to trigger insolvency proceedings. As a result, bankruptcies and insolvencies fell to their lowest levels for decades. The changes are scheduled to remain until December 31.

Many sectors will continue to do it tough well into next year and beyond. The pandemic could cut demand for new houses and apartments by up to 230,000 over the next three years, as Adam Creighton writes on Monday. Between March and July rental listings more than doubled in parts of inner Melbourne and Sydney, and increased 60 per cent in central Brisbane. Advertised rents in Melbourne’s CBD have dropped more than 20 per cent, and by almost 25 per cent in Sydney’s inner east. In sections of the property sector, much will depend on the timing of international border reopenings, the return of overseas students and the resumption of immigration, which has accounted for 59 per cent of Australia’s population growth since 2007.

The positive news, Creighton reports in Business Review on Monday, is that the expected avalanche of corporate insolvencies and personal bankruptcies next year will have less impact on banks than in previous recessions. Analysis by bank expert Matthew Wilson puts likely credit losses over the next two years at $45bn, less than the losses incurred during the 2008 financial crisis and less than a quarter of the losses experienced in the early 1990s. The predictions reflect the fact that large corporations are in a stronger position than they were during the 2008 global financial crisis and the recession of the early 1990s.

The steady improvement in Victoria should help reopen the economy and provide workers with security, as Josh Frydenberg said on Sunday. An acceleration out of stage-four restrictions should also help prevent Christmas shortages in the retail sector. The nation’s largest transport and logistics company, Toll Holdings, has warned that containers abandoned at wharves and staffing shortages in warehouses risked supply problems. As Victorian Chamber of Commerce and Industry CEO Paul Guerra says, the road map for opening up needs to be brought forward in a “strategic, health-focused and well-managed way”.