States cannot attempt to keep a clean sheet on infections at home while they undermine the collective economy.

States cannot attempt to keep a clean sheet on infections at home while they undermine the collective economy.

Right now the nations beacon is NSW. Reserve Bank governor Philip Lowe says it is a really important test case. It has more cases than Queensland but its not a Melbourne-style disaster.
If the state can keep most of its economy open while jumping quickly on any community transmissions, that might encourage border reopenings outside of stricken Victoria. That is how Australias suppression strategy was designed to play out, until Victoria went pear shaped.
The political appeal of border closures is clear. Putting up a virtual wall means a state can fine-tune who comes in and out. Perth football stadiums and Gladstone pubs are busy because distant borders are shut. Thats reassuring for governments with elections around the corner.
States can attempt to be islands only at a crippling cost to the finances of all Australians, and the freedoms of their own citizens.
Yet warnings by both the Morrison government and the Reserve Bank underline the moral hazard of states playing the populist card on borders, drawing on the collective national economy even as they help to undermine it.
Households in every state actually have more income than a year ago. But its only because millions are furloughed at home on borrowed time funded with borrowed money, both of which are running out. Or theyve tapped an early release of their superannuation savings. But JobKeeper will wind off between September and March, returning many to the job market.
Nobody wants the headlines of Victoria. But New Zealand, which this week shut down its largest city on the strength of four new cases after 104 days of zero cases, shows the futility of the shut-open-shut hammering of the economy demanded by the zero-infection approach some states aspire to.
It is quite likely that Australia will keep its international borders closed for some time too, except possibly to New Zealand. But states can attempt to be islands only at a crippling cost to the finances of all Australians, and the freedoms of their own citizens.
This weeks reporting season has revealed the fickleness of the outlook. Australians have taken to retail therapy as well as hoarded cash in response to the crisis.
Retailers and homeware makers like Premier, Adairs, Nick Scali and Breville saw profits jump, some controversially paying out dividends after they had collected JobKeeper and rent relief, after shutting shops in the first lockdowns.
But many Australians have saved, boosting bank capital and letting Commonwealth Bank pay out close to the prudentially regulated ceiling for dividends. The banks have become a critical leg of the Team Australia support effort, with their big capital buffers allowing them to stand by millions of deferred loans.
But it is not enough to hide the strain that is coming. Even companies with dominant positions in exposed sectors, like toll road operator Transurban and Flight Centre, reported smashed profits.
That should warn state premiers that suppressing this pandemic within their borders wont be helped if the economic toll on their citizens rises.

Share