Extra coronavirus lockdown pain a risk to economic recovery

Victoria is preparing to extend its economically damaging seven-day lockdown by up to another week.

A resident at the locked-down Arcare Maidstone Aged Care in Melbourne's west is attended to by a medical staff member on Tuesday. Picture: Andrew Henshaw

Victoria is preparing to extend its economically damaging seven-day lockdown by up to another week, as the nation’s top two economic officials warn that virus outbreaks represent the biggest risk to the national recovery and are urging Australians to get vaccinated.

Treasury secretary Steven Kennedy on Tuesday warned of “downside risks” to the budget’s upbeat projections should the Victorian lockdown be extended, as new KPMG modelling estimated a $125 million economic hit for each day the lockdown continued.

Senior Andrews government ministers and health officials were meeting on Tuesday night to discuss the length of the likely extension to the lockdown, which was due to end on Thursday night.

The Australian understands one scenario under consideration would be to extend the lockdown to cover the Queen’s Birthday long weekend from June 12 to 14. A final decision is expected to be announced on Wednesday.

As the meeting took place, a NSW Health was advised by the Victorian Department of Health that a confirmed case of Covid-19 from Melbourne was in southern NSW — including Jervis Bay, Goulburn, Hyams Beach and Vincentia — while potentially infectious on May 23 and May 24.

People line up at the Royal Exhibition Building in Melbourne to get their vaccine jab on Tuesday. Picture: Ian Currie

The person, who reported the onset of symptoms on May 25 and was tested on Monday, returned to Melbourne on May 24.

The speed with which the Indian B.1.617.1 variant of the virus has been moving has been cited as a particular concern.

Dr Kennedy called on Australians to get the jab as soon as possible, saying “we cannot take our recovery for granted” and that it was of “utmost importance that Australians get vaccinated when their turn comes”.

He said it would help “reduce the health and economic risks of future outbreaks” and re-open the international border.

“The key issue is suppressing the virus,” he said.

Holding rates at the record low of 0.1 per cent, Reserve Bank governor Philip Lowe said an “important ongoing source of uncertainty” was the possibility of significant outbreaks of the virus, although he noted this should diminish as more of the population was vaccinated.

Dr Lowe said the economic recovery in Australia was “stronger than earlier expected” and set to continue with growth forecasts holding steady at 4.75 per cent this year and 3.5 per cent for 2022.

Scott Morrison told the Coalition joint partyroom meeting on Tuesday to brace for further outbreaks around the country, warning that “what has happened in Victoria could occur in any state or territory at any time”.

People walk past a closed cafe on Melbourne's St Kilda Beach on Tuesday. Picture: AFP

Industry sources said the Victorian government was modelling the hit to the state budget of extending the lockdown by another week.

A spokeswoman for Acting Premier James Merlino said the state was “reviewing the situation day by day” and any decision made would be based on “strong public health advice.”

KPMG chief economist Brendan Rynne warned that the initial week-long shutdown would cost $875 million alone. Dr Rynne compared economic activity in Victoria on lockdown days in the second half of 2020 to non-lockdown days.

“Simply, the lockdown settings last year resulted in Victorian gross state product being $125 million less each day the lockdown occurred,” Dr Rynne said.

He said the actual impact could be “a little worse than estimated” due to the lack of support packages that existed last year, including the government’s flagship $90 billion JobKeeper wage subsidy scheme.

Despite the heavy cost of reimposing restrictions, Dr Rynne said it was important to recognise the difficult situation the Victorian government was in.

“If this current lockdown did not happen and the virus was to get worse the impact could be considerably higher if a deeper and longer lockdown period was required to get a larger outbreak under control,” he said.

A lone pedestrian walks along Princes Bridge in Melbourne. Picture: Getty Images

Restaurant and Catering chief executive Wes Lambert said the realisation the lockdown could run for a fortnight or longer was deeply troubling hospitality operators across Victoria.

“If this happens, the wider accommodation and food services industry alone will lose up to $1 billion in revenue,” Mr Lambert said. “Who is going to fill that hole? Who is going to pay the rent, the fixed costs, the wages?”

Josh Frydenberg again rejected demands for federal assistance, and accused the state Labor government of running a “pretty desperate attempt to smear us” in an address to the Coalition partyroom.

Appearing before a parliamentary committee on Tuesday, Dr Kennedy revealed that any extension to Victoria’s week-long lockdown could threaten the federal budget’s economic outlook.

He said the budget had assumed that a dozen short, citywide lockdowns in 2021, evenly spread throughout the year, would not last longer than a week and would be contained to metropolitan areas. But where lockdowns extended beyond these parameters, “that would have a downside impact on growth,” Dr Kennedy said.

The budget also assumed a “population-wide vaccination program” was likely to be in place by the end of the year. This, alongside containment measures including improved testing and tracing, was assumed to “allow us to manage the virus without resorting to lockdowns,” Dr Kennedy said.