Virus will wipe $50b off economy: Treasury

Australia’s economy will take a $50 billion hit in the June quarter but things could get a lot worse if restrictions to deal with the coronavirus stay in place.

Prime Minister Scott Morrison has said Australians have earned themselves an early mark for their help in flattening the rate of new infections.

Now, as the nation’s leaders start planning baby steps towards normality, Treasury bean counters have calculated the economic cost of the health measures.

Treasury estimates every extra week the current restrictions stay in place costs another $4 billion.

As it is, Australia’s economy is forecast to shrink by between 10 and 12 per cent by June, equivalent to $50 billion, Treasurer Josh Frydenberg will reveal in a speech on Tuesday.

But Australia is fortunate in not having had to resort to a full lockdown.

“Significant sectors of our economy like agriculture, mining and construction have been able to adapt to the new health restrictions and in most cases continue to operate,” he will tell the National Press Club, according to extracts of his speech.

Nevertheless, he sees it as vital to get people back into jobs quickly.

Shadow treasurer Jim Chalmers says the Treasury estimates are very confronting.

“The longer that the economy is shut down, the more impact that will have on jobs, livelihoods, living standards and people’s personal finances,” he told ABC TV.

“Every decision-maker in the economy, whether it’s the politicians, the employers, and the workers, have difficult decisions to weigh up.”

History shows unemployment takes a lot longer to go down than it does to spike.

In the current crisis, Treasury expects the jobless rate to double to 10 per cent by June.

It says the situation would be a lot worse but for the government’s JobKeeper wage subsidy.

The number of jobs advertised more than halved in April, a record monthly drop.

“Notwithstanding Australia’s success to date on the health front, and the unprecedented scale and scope of our economic response, our economic indicators are going to get considerably worse in the period ahead before they get better,” Mr Frydenberg will say.

But still, he believes there is cause for optimism about the future.

The heads of Treasury and the Reserve Bank have told leaders policies to promote economic growth after the health crisis passes must not be business as usual.

But Mr Frydenberg will point to the coalition’s intention to hold fast to its guiding values and principles and say that dynamic, innovative, and open markets are key.

Australian National University tax expert Robert Breunig wants the government to hold a national summit examining taxation reform that would kickstart the economy while reducing the mountain of debt piled up in responding to the coronavirus.

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