We’ll be feeling the effects of Covid for years to come

A nurse handles an AstraZeneca vaccine vial in Sydney in March. Picture: Getty Images

COVID-19 keeps surprising us, as it is right now. What will be the permanent changes to our lives it will bring? The brilliant achievement of the global vaccine effort is being challenged by the virus. A South African strain looks as though it can challenge immunity. New strains attack young people more frequently so that some nations that did well just because they had a younger population are now suffering.

Similarly, until recently we never ever had even one coronavirus vaccine. Now we have several. But ours, AstraZeneca — and now Johnson & Johnson as well — has shown up a tiny blood clotting risk. People naturally are spooked by this and want the safest vaccine.

It is true, though, that there is a price to pay in our being slow with vaccines. We are accruing enormous debt to remain safe and afflu­ent. That debt has consequences.

So the permanent effects of COVID depend a good deal on how effective vaccines are in the long run. There’s still plenty of reason to be optimistic.

Here’s one contrary straw in the wind. British Prime Minister Boris Johnson said this week that Britain’s ability to open up was not a result of its successful vaccine program but of its lockdowns. If that’s true, the impli­ca­tion is that lockdowns will be part of the future as well as the past.

So, assuming vaccination is reasonably but not perfectly successful, what will be the long-term effects on Australia? Here are possibilities in five key areas: immigration, debt, interest rates, social equity and inflation.

It is a tragedy that our permanent immigration program has been so severely cut. It’s necessary while we have shut the national borders. But no country in the world more desperately needs a big, selective immigration program than Australia.

We need it for economic, social and security reasons. Economically, the benefits are obvious. A skilled migration program means you get all the investment in migrants’ education before they come here for free. That’s a financial gain and increases productivity.

Properly selected skilled migrants are typically middle class and bring a substantial wad of capital with them. Successful immigration has long been our history. John Monash was a great general partly because he was a great engineer, and he was a great engineer partly because he read technical journals in German because of his immigrant parents.

Selecting younger immigrants substantially reduces the age profile of the population. This is not just a temporary effect because everyone grows old eventually. If immigration has a strong bias towards the young and is maintained as a percentage of the overall population its effect on keeping the population younger, and therefore vastly more productive, is permanent. Immigration is no more a Ponzi scheme than life is a Ponzi scheme. We all grow old and die eventually. But a younger Australia is a better Australia in every way.

Socially, we need immigration because the way we have structured our work lives and social arrangements means we have now a very low birth rate, far below replacement level. For all the talk of empowering women, those women who want to spend some years at home with their young children are massively disadvantaged. We have in effect made this an impossible household arrangement unless the main breadwinner is fabulously well paid. To reclaim dynamism in our society we need the refreshment of young people.

Conservatives should love this because immigrants are typically more religious and more socially conservative than other Australians.

We also desperately need immigrants on security grounds. Australia, with fewer than 26 million people, is a tiny population in a region heaving with people. We are a land substantially without people in a region of countless people with very little land. Without immigrants in large numbers, we would quickly age and decline.

Do you really think we could maintain possession of this vast continent in those circumstances? A bigger Australia has a bigger economy and therefore a bigger defence force.

I suspect COVID’s effect on immigration may be long lasting. I would be happy to see a long-term reduction in the very high volume of international students and a re-emphasis on permanent skilled migrants.

Permanent migrants would need to be vaccinated before they came here, tested on arrival and quarantine for two weeks after arrival. They then typically have no need or desire to leave Australia at least for a couple of years. Permanent migrants have a civic commitment to Australia and help build a society.

Many students who come here want to become permanent residents but they have to go through ludicrous and demeaning and often not quite transparent procedures. It cheapens and taints the whole process. Much better to have straightforward, genuine skilled immigrants.

Because the policy case for immigration is so overwhelming, government will want to revive it. But I think opening the borders is going to be very, very slow and we will foolishly seek the short-term cash of tourists and students above the long-term life commitment of permanent immigrants.

On the other indicators, the effects of COVID are equally dolorous. On debt, John Howard and Peter Costello left us free of debt. Now we have massive debt. The government was right to spend money on social support and vaccines and the like, but debt has consequences, one of which will be that interest rates will need to stay low for a long, long time.

I am old enough to remember paying a home mortgage at nearly 18 per cent. What would an interest rate like that now do to government debt, mortgage repayments, business viability? Forget 18 per cent, what about 8 per cent?

But low interest rates mean asset prices become higher and there’s a lack of good places to invest your retirement capital. This sees a lot of money head towards real estate. This has big social equity implications. If you already own one or more properties you have probably done pretty well financially out of COVID. If you’re locked out of the housing market, you’re more locked out than you have ever been.

The way governments formerly solved long-term debt problems was through inflation. Now we have asset price inflation but no consumer price, or wages or welfare, inflation. Inflation used to make your debt burden reduce, now it makes someone else’s asset value increase. One possible outcome, down the road, is a return of the stagflation of the 1970s.

In any event, these problems will take years and years to resolve. And that’s assuming vac­cines work.