Budget 2020: After Covid pain, hopes rest on bringing state into line

Victoria’s second COVID-19 wave has smashed the national economy.

The second coronavirus wave in Victoria slashed national GDP growth by about two percentage points in the September quarter but the Morrison government is assuming the state will be able to lift its draconian restrictions by the end of the year.

The budget assumes Victoria will effectively be brought into line with most of the rest of the country, except for Western Australia.

However, Treasury has warned that if there were a repeat of the Victorian experience in Australia next year, and ongoing outbreaks like those seen elsewhere this year, economic activity could fall by as much as $55bn in the financial year ending 2021-22.

This would be similar to the hit suffered nationally this year.

The federal government is promising more $1bn in funding for dozens of infrastructure projects in Victoria, specifically designed for shovel-ready upgrades.

These include improvements as part of the Melbourne-to-Brisbane Inland Rail Project.

It also has reinforced its commitment of a $5bn contribution to the long-stalled Melbourne Airport Rail Link.

Treasury said that until the second wave hit Victoria the country had been heading in a positive direction. “The outbreak of the virus and reintroduction of severe restrictions in Victoria has set back this recovery, with indicators of activity and the labour market deteriorating in that state over recent months,” it said.

“It is estimated that the second-wave outbreak in Victoria will have lowered national GDP growth by around two percentage points in the September quarter.

“Timely indicators suggest that activity and employment continued to recover in other states and territories in the September quarter 2020, especially those that had fewer cases and were able to lift most restrictions.”

With the Victorian government working towards a substantial easing of restrictions within weeks, Treasury has assumed that by the end of this year the virus will effectively be under control in Victoria.

“Outside of Victoria, restrictions have been progressively lifted, with some differing rules across states and territories,” Treasury said. “The lifting of restrictions is subject to preconditions that require case numbers to fall. These forecasts assume that the preconditions are met. Victoria’s activity restrictions are ­assumed to broadly converge to those in other states by the end of 2020.”

While the national unemployment rate is forecast to peak at 8 per cent in the December quarter 2020, the impact of the Victorian hotel quarantine disaster is clear in the run up to Christmas.

“Further rises in the unemployment rate are still expected over coming months, reflecting headwinds from ongoing international and domestic border ­restrictions, the continuation of health restrictions in Victoria, ongoing restructuring among businesses and the impact of increased participation as people continue to return to the labour force to look for work,” Treasury said.

The government has detailed special assistance of $7.5m to the Victorian disability sector to help residential service providers.

This is in addition to working with the Andrews government to establish a Victorian Disability Response Centre to support information sharing and co-ordination to quickly respond to outbreaks.