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As Treasurer Josh Frydenberg prepares to unveil a mini-budget on July 23, the Covid-19 outbreak in Victoria has put the country’s economic recovery in jeopardy. By Karen Middleton.

The impact of Victoria’s second wave

The premier of Victoria, Daniel Andrews, speaks to the media on Tuesday.
Credit: AAP Image / James Ross

Two months ago, as Covid-19 restrictions were easing, Treasurer Josh Frydenberg spelled out what it would mean to the economy if a second wave of infection returned the country to lockdown.

He warned that any need to reimpose nationwide restrictions would cost the economy $4 billion a week.

The treasurer broke it down by jurisdiction: the Northern Territory would account for $40 million; the Australian Capital Territory and Tasmania, $100 million each; South Australia, $200 million; Western Australia, $500 million; Queensland, $800 million; Victoria, $1 billion; and New South Wales, $1.4 billion.

“This is the economic cost we will all bear if we fail to act,” he warned at the time.

This week, Frydenberg returned to the Victorian figure to describe the expected impact of the horror scenario now unfolding in Melbourne, Australia’s second-biggest city.

The newly reimposed stage 3 restrictions on most of the Victorian population will cost the best part of $6 billion over the lockdown’s six-week duration.

“This is a serious impediment … to the speed and the trajectory of the nation’s economic recovery, not just Victoria,” Frydenberg told Sky News.

It is also an impediment to Frydenberg’s most immediate task – quantifying the state of the national economy and its likely short-term direction, in the form of two-year projections in a mini-budget to be unveiled on July 23.

As he and Treasury officials wrestled with shifting figures this week, Frydenberg called for a “full-court press” response from governments across the country to prevent the outbreak spreading.

There is significant concern in all jurisdictions that, without drastic action, the Covid-19 outbreak could burst beyond the Victoria–NSW border, now closed for the first time since the Spanish flu pandemic a century ago.

This would have dire consequences not only for health but also for an economy that had shown early signs of improvement.

The treasurer pointed to recent encouraging figures showing consumer and business confidence were both bouncing back, manufacturing activity had almost returned to normal and retail sales had shot up in May.

But he warned the Victorian situation would change that.

“What happens in Victoria will really make a difference to what happens across the country,” Frydenberg told Sky News. “… This is not a time for state-of-origin [rivalry]. This is a time for us all to work together.”

In its quarterly business report, published on Monday, Deloitte Access Economics named Victoria’s economy as the worst-performing nationwide.

“Victoria has had the strongest Covid restrictions across the country and now, with the prospect of a second wave returning and the reintroduction of restrictions, the state is likely to see some prolonged misery in particularly hard-hit sectors,” wrote the report’s author, Deloitte partner Chris Richardson.

“I’m very sorry that we find ourselves in this position,” Victorian Premier Daniel Andrews said on Tuesday. “… This is challenging. I get it. I know that. I understand that. I didn’t want to be in this position. No Victorian does. But let’s not see this as simply an inconvenience. It’s much more than that. It’s a pandemic.

“And it will kill thousands of people if it gets completely away from us. And that will be more than inconvenient. That will be tragic.”

The fear in other states is palpable.

NSW Premier Gladys Berejiklian pleaded with NSW residents to resume the vigilant social distancing they had demonstrated previously, which had slipped in recent weeks.

“What’s occurred in Victoria is a wake-up call for all of us,” Berejiklian said, explaining that the next two to three weeks were crucial in avoiding a mass spread of infection with all its accompanying dangers.

The chair of the international Coalition for Epidemic Preparedness Innovations and former chief of the Health and Finance departments, Jane Halton, warned complacency with physical distancing had crept back, creating the risk of a much worse situation.

“I’m quite worried, if I’m going to be honest,” she told ABC Radio on Thursday. “… This isn’t something theoretical, it’s not something that’s just happening south of the border if you’re living in NSW … It could well be somebody who you’ve had a cup of coffee with, who also has someone in their household who’s just been to Melbourne. So this is real. We can manage it; we have the way. We know it works. But we all have to be part of that solution.”

After restrictions were reimposed across 10 postcodes around Melbourne’s rim last week, and 3000 residents of nine high-rise housing commission towers were placed in effective home detention to address the alarming spread of infection there, the whole metropolitan area was returned to stage 3 lockdown on Wednesday night, along with the satellite towns of the Mitchell Shire to the city’s north.

Other states and territories formally repelled Victorians as the week went on, trying to avoid becoming the next part of both the new burgeoning health crisis and the treasurer’s grim economic portrait.

Concerned by the risk from cross-border traffic, especially around Albury–Wodonga, Berejiklian stopped short of sealing off NSW border towns from the rest of their own state but said she was considering it.

As the national cabinet of federal, state and territory leaders prepared to discuss restricting incoming international flights, Berejiklian also flagged the possibility that Australians returning to NSW might soon have to pay for their own quarantine because they “have had plenty of time to get back”.

NSW residents returning from Victoria will now have to quarantine for 14 days, with Berejiklian focused on “mopping up potential seeding” of infection from Victoria. Despite the border closures, there is still serious concern that outbreaks could occur anywhere around NSW – or further afield – as a result of the spike in cases in Victoria.

On Tuesday, 137 people on a Jetstar flight from Melbourne were able to disembark in Sydney without any screening by NSW Health officials, a breach of airport policy.

By Thursday, all passengers had been located and tested, according to NSW’s chief health officer, Kerry Chant.

The ACT, which by Thursday had recorded four new cases of Covid-19 linked to Victoria, is refusing entry to Victorians arriving directly by air and forcing Canberrans returning from Melbourne to quarantine.

Western Australia’s border remains closed to non-residents indefinitely. South Australia is closed to Victorians, and so is the Northern Territory, which is reopening its border to people from other states from July 17. Tasmania is refusing entry to anyone who has been in Victoria in the past 14 days and has extended its declaration of a state of emergency.

Queensland further hardened its restrictions on Victorians from lunchtime on Friday. The state amended its border reopening conditions to exclude Victorians, offering only very limited exemptions and requiring that Queenslanders returning from the state enter compulsory hotel quarantine at their own expense. Attendance at a funeral in Queensland will not qualify as an exemption for Victorians because the frequent close contact at funerals makes them “high risk”, according to the Queensland government.

The alarming developments in Victoria have upped pressure on the federal government to support the national economy with further stimulus.

As the Reserve Bank kept the official cash rate on hold at a record-low 0.25 per cent for the foreseeable future – possibly years – its governor, Philip Lowe, stated clearly on Tuesday that the bank believed government stimulus must continue.

“The substantial, co-ordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period,” he said in a statement following the board’s monthly meeting. “It is likely that fiscal and monetary support will be required for some time.”

Commercial banks announced a four-month extension of mortgage payment deferrals for people in hardship – a move both the federal government and the Australian Prudential Regulation Authority had encouraged.

The government is now considering bringing forward the already-legislated next round of income tax cuts, scheduled for 2022.

The situation has also amplified calls to clarify the levels of direct income support for those who have lost work and, in Victoria’s case, businesses that have now closed for a second time.

This month’s mini-budget will reveal the fate of the JobKeeper wage subsidy and the boost to the JobSeeker unemployment benefit, both due to expire in September.

Prime Minister Scott Morrison has foreshadowed extending an amended version of JobKeeper, indicating it is likely to be sector by sector, not based on geography.

The opposition is promising to support accelerating the tax cuts, while urging that the subsidy be extended and the higher unemployment benefit be made permanent.

The changes will be the subject of debate when parliament resumes next month, although the Victorian situation complicates these plans. While the ACT government has granted some quarantine exemptions for Victorian federal parliamentarians, there will not be a full complement and overall numbers will be reduced.

At the national cabinet level, the differences between state leaders that had spilled into public bickering, particularly over border closures, have become muted in light of the outbreak, despite some private anger at Victoria’s bungling of quarantine arrangements.

Some federal figures still remain opposed to state border closures, believing ring-fencing affected regions is as effective and less costly to the economy. But nobody sees any benefit in politicking.

Morrison urged the country to pull together and not seek to single out the state with the big problem.

“We’re all Melburnians now when it comes to the challenges we face,” he said on Wednesday. “… It’s my job as the prime minister to rally the governments of Australia … and the people of Australia to support Victorians in this time of need.”

The cost of treating this as anything other than the whole country’s problem is horrifyingly high, no matter how it is measured.

This article was first published in the print edition of The Saturday Paper on Jul 11, 2020 as "Riding the second wave".

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Karen Middleton
is The Saturday Paper’s chief political correspondent.