Next leg of the road to recovery

Josh Frydenberg in his office this week before delivering his budget update. Picture: Sean Davey

We are just over halfway through 2020 and it has already been a devastating year, from the drought to the fires and now COVID-19. Lives have been lost. Businesses have closed. Family dreams shattered. It’s not right, it’s not fair, but it is our harsh reality. Decent, hardworking Australians, through no fault of their own, are paying a heavy price.

Despite the darkness, we have seen once again the remarkable spirit and strength of the Australian character. The selfless bravery of healthcare workers on the frontline, our scientists working tirelessly to develop a vaccine, and all those quiet Australians who are diligently following the medical advice and playing their part in defeating this relentless enemy. Our resolve and resilience will see us through. Two world wars and a Depression didn’t bring Australia to its knees, and neither will COVID.

Four weeks ago, on June 23, Australia recorded 20 new COVID-19 cases. On Thursday, in my home state of Victoria, we had more than 20 times that number. More than five million Victorians are back in lockdown — a painful reminder of how quickly the virus can spread and the consequences that flow.

However, we need to remember that seven of our eight states and territories successfully are continuing to manage the virus. We must keep a sense of perspective. We know there will be new cases and outbreaks. But how effectively we manage these cases and minimise the economic impact will determine the speed and trajectory of our national economic recovery.

The economic mountain ahead of us is steep, as the fiscal update released this week makes clear. Record falls in household consumption, business investment and gross domestic product, with the official unemployment rate to peak in the December quarter at 9.25 per cent.

The shock that we are seeing from the coronavirus is considerably sharper than what Australia experienced during the recessions of the 1980s and 90s. The falls in GDP and employment are around twice as big, and occurred in a matter of months, not years.

In those earlier recessions, the impacts were felt more acutely by working-age men in the manufacturing and agriculture sectors. This time around, women have experienced higher job losses than men. Young people also have been badly affected, making up more than one-third of the jobs lost.

Since February, the economic impact of COVID-19 has cost us 3½ years’ worth of accumulated GDP growth and around three years of hard-won employment growth. All gone through no fault of our own.

In response to COVID-19, we laid out a comprehensive plan.

We closed our borders, imposed a set of restrictions that would suppress transmission but allowed large parts of the economy to continue operating. This was a deliberate strategy.

We didn’t go down the path of countries such as Sweden, which put few restrictions in place. Sweden has had more than 5600 deaths in a population less than half the size of Australia’s while still experiencing large falls in economic activity.

We also provided a record a $289bn of economic support carefully designed to cushion the blow for households, help businesses stay in business and maintain financial stability.

The centrepiece of our support measures has been the JobKeeper payment. It has acted as a lifeline for more than 3.5 million people and nearly a million Australian businesses.

There are thousands of personal stories around the country such as that of Ashley, who runs an audiovisual business in Adelaide. As thousands of dollars’ worth of bookings were cancelled because of the pandemic, JobKeeper, in her words, acted “as glue” for her and her employees, allowing her to keep staff on.

Without JobKeeper and our other measures, the unemployment rate would have been five percentage points higher than we have seen. It has saved 700,000 jobs. And like so many of our measures, JobKeeper has been helping lower income households. Around 80 per cent of those people receiving JobKeeper in May were earning less than $90,000 a year before the crisis. We also provided direct support with $750 payments to those low-income households that needed it most, including pensioners, veterans and carers.

We allowed those who had lost their jobs or suffered a large drop in their hours to access their superannuation early and tax free, and we provided targeted support to help businesses survive the crisis.

Recognising that credit is the lifeblood of the economy, we also worked with the Reserve Bank, financial regulators and the major banks to keep credit flowing. Repayment deferrals on existing loans, new loans for small and medium-sized businesses and an injection of funds from the central bank have all had a positive effect.

Taken together, our policy measures have been targeted, temporary and scalable.

With restrictions starting to ease across much of the country, and parts of our economy reopening, we are moving into the next phase this crisis.

While our initial response was focused on preparing our health system, saving jobs and protecting the economy, the next phase will see a focus on enabling growth.

More flexible labour markets, infrastructure investment, new skills and training programs, cutting red tape, and tax reform are all areas that are important to the creation of new jobs.

Unlike past recessions, monetary policy is constrained and will do much less of the heavy lifting. Fiscal support and productivity-enhancing reforms will be even more critical to the speed and trajectory of the recovery.

This is a difficult time for Australians. It will test many of us like we have never been tested before. But we can be confident that as a nation we have the ability to manage these challenges and the plan to do it.

Josh Frydenberg is the federal Treasurer.