Coronavirus: $7.5bn deficit for Victoria in 2019-20, 2600 a day have lost jobs

Modelling predicting Victoria’s jobless rate will peak at nine per cent assumes the current lockdown will only last six weeks.

Victorian Premier Daniel Andrews. Picture: Getty

Victoria’s 2019-20 budget is expected to return an operating deficit of $7.5bn as a result of reduced revenue and increased expenditure arising from the COVID-19 pandemic.

However, Treasurer Tim Pallas’s prediction of a nine per cent peak in unemployment in September, and a 6.25 per cent rebound in gross state product in 2021 following a 5.25 per cent fall this calendar year is based on the current Stage Three coronavirus restrictions only remaining in place for a six week period, before a gradual easing through August and September.

This is despite a warning on Wednesday from Premier Daniel Andrews that if the state’s coronavirus case numbers continue to rise, “a six week shutdown will not be for six weeks. It will run for much longer than that.”

Ironically Victorian treasury’s previous April modelling — which painted a much grimmer picture of unemployment peaking at 11 per cent in September, and gross state product plunging 14 per cent in the calendar year — was revealed at a time when the state had thousands fewer active cases of COVID-19, but was based on the assumption of six uninterrupted months of Stage Three restrictions.

Mr Pallas acknowledged the assumptions his more optimistic modelling was based on, indicating things could still get much worse if the virus continued to spread.

“We assume that the end of the six week period will see a gradual removal of restrictions over the month of September,” Mr Pallas said.

“Now, that may or may not prove to be the outcome, but we have to give our best assessment, and that‘s where we think we will be.

“If the situation changes, of course it will affect our modelling, and can I undertake to you now that I’ll be back to give you a report on what that will do and what that will mean for the government’s forecasts.

“I hope you appreciate that this is a dynamic and rapidly changing situation. What we’re trying to do is to give you as open, as transparent and as real time assessment of what’s happening as it becomes apparent to government.

“It‘s all dependent upon the morphology of the disease, how it presents, how many Victorians it affects, and that will change day to day.”

Taxation and GST revenue are now expected to be around $8.5bn lower over the 2019/20 and 2020/21 financial years compared with pre-pandemic forecasts – as a result of lower property tax revenue, declining payroll tax and reduced GST.

Mr Pallas said comparisons between the current coronavirus-led global downturn and the Great Depression were “not entirely overinflated.”

“The economic devastation caused by coronavirus is simply eye-watering, and for many individuals it will be both traumatic and devastating, and we need to recognise that, we need to give you as clear and as accurate an assessment of the situation as we can,” he said.

“The longer this pandemic event continues, the greater the spread of the virus throughout the community, not only is it a massive health event, it will be an ever-growing economic event, so getting control of the virus is not only good for our health, but it’s good for our economy.

“The sooner we get on top of the virus, the sooner we can repair the economic damage it’s caused.

“This is bad, this is grim, this is a profound economic event that’s going to have a telling effect upon the community, upon the management of our budgetary situation, but in a broader sense it will have a broader effect upon the way that the economy operates for many years to come.”

Victoria’s decline in unemployment, from 5.2 per cent in March to 7.5 per cent in June, has already seen 160,000 jobs lost in that time — working out to an average of 2622 job losses per day.

The true unemployment rate is estimated to be significantly higher, at 9.8 per cent, because official figures do not account for those who have given up looking for work and are therefore not classified as unemployed.

Mr Pallas said there had been an estimated loss in economic activity of about $11.4bn in the June quarter as a result of the virus.

“That is profound in anybody’s language,” he said.

The Treasurer said the Andrews government had spent more than $3bn in 2019-20 of the emergency $24.5bn credit facility it organised in April, using the cash to pay for the frontline health response to the virus as well as an economic survival package.

“Statement confirms Labor’s budget mess”

Opposition treasury spokeswoman Louise Staley said state treasury figures released earlier in the year had already indicated Victoria’s budget had been in deficit since 2019 — long before the pandemic — and Thursday’s budget statement “confirmed Labor’s budget mess”.

“Daniel Andrews’ hotel quarantine mess has caused a second outbreak, meaning that Victoria’s recession will be deeper and more painful for struggling Victorian families trying to make ends meet,” Ms Staley said.

“Victoria was already paying for Labor’s economic mismanagement before COVID-19 hit.

“Now thanks to Labor’s bungling, more will be out of work, and Victorians will be paying off Labor’s debt for much longer.

“While other states continue with their economic recovery, the budget mess and recession that Labor got Victoria into before COVID-19 will now last longer due to Labor’s mismanagement of hotel quarantine.

“This means that more Victorians will find themselves out of work and Victorian taxpayers will get whacked with a massive debt bill that will take them decades to repay.”

‘This is not something that’s going to be over soon’: Andrews

Asked why the federal and state governments had based their economic modelling, announced on Thursday, on Victoria being locked down for six weeks, Mr Andrews said modelling was necessarily based on assumptions.

“It’s modelling based on assumptions, and at critical points in time we won’t be dealing with assumptions, we’ll be dealing with the actual facts that we face,” the Premier said.

“The very fact that the federal government have extended their support arrangements, JobKeeper and enhanced JobSeeker right out until March, I think that’s an answer to your question in many ways.

“This is not something that’s going to be over soon, because unless and until a vaccine is developed, this is always to some extent, going to be with us.

“The key point though is, do we want these sort of Stage Three restrictions for a much longer period of time, or do we all play our part, do our very best to beat this thing, or at least to suppress it, to smash it so it’s so it’s in such small numbers that we can open up again?”