Outlook: Benjamin Ong

Ignoring the rules risks prolonging the pain the whole country is suffering

Victorian Premier Daniel Andrews declared a state of disaster on Sunday, August 2, and imposed stage four restrictions that will run for six weeks (until September 13) as his government tries to contain the second wave of the coronavirus outbreak.

This followed the failure of targeted restrictions: the lockdown of certain Victorian postcodes and public housing, stage three restrictions and mandatory wearing of masks. This is because, as Andrews put it, “too many people are not taking this seriously”.

Worse, a few even flouted the restrictions, protesting that they infringe on their civil liberties.

Now it’s a disaster. A state of disaster, that is.

As The Australian Financial Review explains, “under a state of disaster, police have extra powers and various acts of parliament can be suspended”.

Andrews said: “There is no question about the enforceability and the way in which new rules are going to operate. This will give our police additional powers to make sure people are complying with public health directions …”

All those who refuse to obey government advice and/or restrictions for one reason/ cause/principle or another have now further limited the freedom of all Victorians with, among other measures, a daily curfew that prohibits Melburnians from leaving their homes between 8pm and 5am unless for “work, medical care and caregiving”.

They have forced the temporary closure of all non-essential businesses in Victoria.

Depending on the success or failure of the stage four restrictions, temporary business shutdowns could turn into permanent bankruptcies and rising unemployment.

Weaker economic activity in Victoria – which accounts for 25% of national output – would surely drag down Australia’s overall economic growth.

Recent reports are that Victoria’s sixweek lockdown could wipe $9 billion from the national economy and cost more than 250,000 jobs – not to mention an even bigger budget deficit.

But just as treasurer Josh Frydenberg says, “the extent of the damage would depend on the effectiveness of the restrictions that’s slowing the spread of the virus”.

When Treasury released its economic and financial update in July, it assumed restrictions re-introduced “across metropolitan Melbourne and the Mitchell Shire from July 9” would “remain in place for six weeks, easing to step one restrictions until mid-September before the gradual move to the final step by mid-December”.

These assumptions were embedded in its prediction that the overall economy would contract by 0.25% in the 2020 financial year and by 2.5% in 2021; the unemployment rate rising from 5.2% in 2019 to 7% in 2020 to 8.75% next year; and the budget deficit ballooning to $184.5 billion (9.7% of GDP) this fiscal year – the biggest deficit since World War II.

Recent developments in Victoria would result in lower national economic growth, higher unemployment and a bigger budget deficit. At its August board meeting – which incorporated Victoria’s lockdown – the Reserve Bank’s baseline scenario predicted that “output falls by 6% over 2020 and then grows by 5% over the following year” and “the unemployment rate rises to around 10% later in 2020 due to further job losses in Victoria and more people elsewhere in Australia looking for jobs”.

It could be better or it could be worse, “dependent on containment of the virus”.

To this I add that the more some people dig their heels in, the longer Australia takes to heal … and with far greater disastrous consequences to health and to wealth. We’re sacrificing a few weeks of quietude and complying for the greater good, and we can discuss the rights and the wrongs once we get to the other side of this pandemic.

Benjamin Ong is director of economics and investments at Rainmaker Information.