Targeted Covid-19 lockdowns ‘to run into new year’

Scott Morrison and national cabinet leaders are preparing for ­targeted lockdowns to run into next year.

Health Minister Greg Hunt in Melbourne on Thursday. Picture: David Crosling

Scott Morrison and national cabinet leaders are preparing for ­targeted lockdowns to run into next year, with Treasury updating its assumptions on the frequency and economic ramifications of Covid-19 restrictions in response to the highly contagious Delta strain.

Scenarios prepared by the ­Doherty Institute outlining the optimal vaccine coverage required for Australia to begin opening up have been shared with Treasury officials, who have been tasked with modelling the economic costs of various health outcomes.

The Australian understands Treasury is updating its assumptions on the frequency of lockdowns and other Covid-19 restrictions, which will be provided to national cabinet leaders to balance the health and economic advice.

Ahead of Friday’s national cabinet meeting where state and territory leaders will be briefed on the Doherty Institute’s preliminary findings, the Prime Minister refused to commit to lockdowns ending by the end of the year, ­saying “no one can give those guarantees”.

“The virus is unpredictable and it would be irresponsible to do so,” he said.

After the federal and NSW governments this week announced a $1bn-a-week rescue package for businesses and individuals, Deloitte Access Economics partner Chris Richardson said the climbing costs of lockdown relief and the hit to taxes from a slump in economic activity would send the federal budget backwards.

The Morrison government’s cautious approach comes after countries with high vaccination rates – including Singapore and Israel – were recently forced to reintroduce lockdowns and Covid-19 restrictions in response to new Delta outbreaks.

Previous modelling on the Alpha variant provided to national cabinet earlier this year has been superseded by the Doherty Institute’s work on the Delta variant. Senior government sources said a final decision on Australia’s four-stage plan to reopen the country, which is likely to be finalised in August, would be based on the best, most current, health and economic data.

Mr Morrison said while he was confident the nation could get on top of Covid-19 outbreaks and restrictions by Christmas, targeted lockdowns in “extraordinary circumstances” could not be ruled out even when vaccination rates reached higher levels.

On the back of a record day of vaccine delivery, with more than 201,000 jabs administered, Health Minister Greg Hunt said the government’s ambition was to return “as close to normal as possible, as quickly as possible”.

Treasury’s updated forecasts, in line with the Doherty Institute’s vaccination scenarios, follows optimistic assumptions in the May 11 budget that said “localised outbreaks of Covid-19 are ­assumed to occur but are effectively contained”.

“It is assumed there are no extended or sustained state border restrictions in place over the forecast period,” they said.

Ahead of the mid-year economic and fiscal outlook this year, Mr Richardson said astounding improvements in the commonwealth budget since May had now been more than reversed.

“The remarkable improvement in the budget before this hit gave us a lot, but it’s now reached a point where the cost of the support measures and the cost of the weaker economy eating into the tax take have taken back more than that,” he said.

Mr Richardson said the federal government would need to borrow up to an extra $20bn to cover new spending initiatives but the decision to ramp up spending was the correct response, and even an extra $20bn in debt would add only marginally to interest obligations.

Moody’s lead analyst for Australia, Martin Petch, said while the lockdowns would trigger a deterioration in the budget, it was not expected to be “material”.

Latest Department of Finance figures showed by May a $13.9bn improvement in the $161bn forecast deficit for this financial year as the recovery ran ahead of the most optimistic forecasts.