Treasurer Josh Frydenberg has revealed the extent of the economic damage being caused by lockdown measures, with the shock now dwarfing that of the GFC.
“For every extra week that the current restrictions remain in place, Treasury estimates that close to $4 billion will be reduced in economic activity from a combination of reduced workforce participation, reduced productivity, and reduced consumption,” Treasurer Frydenberg told the National Press Club. “This is equivalent to around what 4 million Australians on the median wage would earn in a week.”
Unemployment is expected to increase to 10 per cent as a result of the crisis, according to Treasury estimates. But data from Roy Morgan shows that unemployment could already be as high as 15 per cent, while new statistics from the ABS showed that a million Australians in the accommodation and food sectors lost their jobs – almost a third of jobs across the sectors.
“History shows that the longer people are unemployed, the harder it is to get a job,” Mr Frydenberg said. “In the early 1990s, the unemployment rate increased by five percentage points over three years. But it took seven years to get back to its pre-crisis level. As has been remarked, unemployment went up the elevator, and came down the stairs.
“It underlines the importance of getting people back to work as soon as possible to avoid the long-term economic and social impacts from high unemployment.”
But when queried later in the address, Mr Frydenberg refused to budge on the matter of a permanent increase to the Newstart Allowance.
“We’ve been very clear that the measures we’ve announced are temporary, they’re targeted, they’re proportionate, and they use existing systems,” Treasurer Frydenberg said. “These were the principles we adopted.”
Both JobKeeper and JobSeeker are time-limited initiatives. If unemployment will indeed come “down the stairs”, potentially millions of Australians will shortly be delivered into an unemployment benefit that many economists believed was hopelessly limited before the massive economic shock. And while there’s hope that the lifting of restrictions will see a “V-shaped” recovery and a rapid return to work for millions of Australians, Treasury itself acknowledges that some jobs and businesses won’t survive the shock.
“Some jobs and businesses will have been lost permanently,” said Treasury secretary Steven Kennedy. “The Treasury will increasingly turn to these challenges, continuing to advise on policy settings and reforms that will enable our country to prosper in a world that in many ways will look largely the same, but may have also changed in some important and sustained ways.”
Treasury is still grappling with the COVID-19 shock, with Treasurer Frydenberg preparing to present an economic update to the House of Representatives on 12 May. The budget is now set for October.
