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Severe recession, huge debts: Australia's Covid-19 strategy

By Brendan O'Reilly - posted Thursday, 16 July 2020


Australia started out with a stated policy of merely attempting to "flatten the curve" of new Covid-19infections, so that our medical facilities could cope with the inevitable spread of the virus. We achieved this ­– mostly by closing our borders, and by using targeted quarantine, social distancing, and strategic testing. The shutdown also helped, but was less important.

By May this year, our politicians were congratulating themselves about the rapidly slowing rate of new cases. The PM and most state premiers also benefitted from a lift in the polls. The public, however, was told "that doesn't mean we can we can lift restrictions just yet. We need to continue the current measures and see sustained flattening".

In response to Australia's success in limiting the spread of Covid-19, the official strategy then seemed to morph into (an unstated) bolder one of eliminating the virus altogether, which is what New Zealand seeks to achieve. [Stephen Duckett of the Grattan Institute, and some others openly advocated such a policy, though no government in this country explicitly did.] The Australian National Cabinet met with New Zealand PM, Jacinda Ardern, in May to consider a trans-Tasman "travel bubble" as part of limited efforts to reopen Australia's borders.

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These plans now have fallen in a heap.

Just a week after New Zealanders celebrated "having rid the country of Covid-19" and the NZ government lifted all restrictions except controls on entering, the virus came back to bite them. Health officials were forced to admit that two women, who had arrived from the UK on 6 June and left managed quarantine on 13 June, were later found to be infected. They had not been tested for the virus. On 7 July two new cases were found among returning travellers. In all there are now (11 July) 25 known active cases of Covid-19 in New Zealand, all in managed isolation or quarantine.

Meantime, metropolitan Melbourne went into a stage three lockdown for six weeks after the state recorded 191 new cases of Covid-19 in one day. At the time of writing (after six successive days of over 100 new cases) this record was surpassed with more than 288 new cases on 10 July. The six-week Melbourne lockdown may cost $1 billion a week. [Given that the standard quarantine for the virus is 14 days, it is not clear why six weeks is necessary.]

The latest breakout in Victoria and smaller outbreaks in NSW suggest that the complete elimination strategy is not viable. Moreover, the policy of isolating Australia from international travel is high risk because it is reliant on the rapid development of an effective vaccine. Qantas CEO, Alan Joyce, said that the airline is unlikely to resume international flights until July 2021, and that "it is expected to take three years for international travel to return to 2019 levels".

There are a number of hard facts that are being largely ignored by our governments.

Firstly, there is no guarantee that an effective Covid-19 vaccine will be developed.

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Corona viruses (first identified in the mid-1960s) are a common group of viruses in both humans and animals. They usually cause mild-to-moderate respiratory illnesses, and are the cause of about 20 per cent of common colds. There are at least seven corona viruses that can infect people. The best known are Covid-19, SARS-CoV (the one that causes severe acute respiratory syndrome, or SARS), and MERS-CoV (Middle East Respiratory Syndrome).

To date scientists have never made a successful vaccine for a corona virus (including for SARS). According to Professor Ian Frazer from the University of Queensland, it probably won't happen soon because Covid-19 is posing challenges that scientists haven't dealt with before. Currently, only two companies, Moderna and Sinovac, are in stage-two trials. Human trials for a COVID-19 vaccine being developed by the University of Queensland are just starting. Five other companies are in stage-one trials, while scores of others are in a preclinical phase.

Experience with (easier to develop) flu vaccines is also cautionary.

According to the Centre for Disease Control, flu vaccines have only limited effectiveness. Because such viruses undergo frequent genetic changes (and corona viruses do the same), the flu is endemic. During seasons when the flu vaccine viruses are similar to circulating flu viruses, the vaccine can be moderately effective. Flu vaccine has been shown capable of reducing the risk of a bad flu by 40 – 60 percent.

Seasonal flu vaccines are only designed to protect against infection and illness caused by the three or four most common influenza viruses. During years when the flu vaccine is not well matched to circulating influenza viruses, it is possible that little or no benefit from flu vaccination may be observed. This limitation may well apply to any corona virus vaccine that is developed.

A sobering message comes from Dr Michael Ryan, executive director of the WHO's Health Emergencies Programme. Dr Ryan warned that Covid-19 "may become just another endemic virus in our communities, and this virus may never go away"....."I don't think anyone can predict when or if this disease will disappear," he said.

The bottom line is that it is inevitable Australia will experience further resurgences of Covid-19 cases. The $500 billion that Australian governments are throwing directly and indirectly at this disease (which to date has killed barely over a 100 (mainly sick and elderly) Australians, would almost certainly save countless more lives had it been spent on other areas of public health. If there are many later (more serious) breakouts of Covid-19 after our borders reopen, then the current strategy is postponing and not preventing a big rise in infections down the track.

The economic effects of government policies to counter Covid-19 (especially shutdowns) have been disastrous for many areas of the Australian economy. Travel and hospitality (in particular) have been severely hit, and a lot of businesses are going bust. Unemployment is swelling. Consequently the banks are bracing for a surge in distressed borrowers and bad debts. Deferred loans on mass scale could be a financial time-bomb waiting to go off.

According to the Treasury, the Government's economic support package amounts to $259 billion. This is equivalent across the forward estimates to 13.3 per cent of annual GDP, and direct fiscal measures are equivalent to around 6.9 per cent of GDP. The IMF says that Australia's economy would likely be one of the worst-hit economies in the Asian region, predicting it would shrink by 6.7 per cent this year. The crisis has already proved far worse than the global-financial-crisis-led recession of 2009, and will add $500 billion to government debt this decade. In Australia, Commonwealth and state indebtedness will rise, between this year and next, by more than $40,000 for each working-age adult.

While all this has been happening the government has slipped in more (unrelated new) spending, including $270 million more defence spending, and plans to bring forward income tax cuts. There are continuing calls for even more government support, especially from the opposition and unions.

The most common demands are to extend the Jobkeeper subsidy until at least December, permanently raise income support for the unemployed, and introduce "pandemic leave". Five million Australians on lower incomes will soon receive the Federal Government's second $750 Economic Support Payment, while employers will shortly receive the second instalment of the tax-free Cash Flow Boost (totalling between $20,000 and $100,000, depending on PAYG withheld, over 2020).

Under measures announced by the Australian Government, individuals were allowed to apply to take out up to $10,000 of their super in the 2019-20 financial year and another $10,000 in the 2020-21 financial year. Almost half a million Australians have completely emptied their retirement nest eggs, according to Industry Super Australia. It also estimates that 395,000 of those who have wiped out their funds are under the age of 35. Public service and military funds have already released $169 million in early superannuation, despite public sector workers being secure in their jobs.

The government can't keep paying Jobkeeper and double dole indefinitely. Similarly, it is naive to think that the airlines, foreign tourism, and other sectors can be subsidised for years. Deferring rent or loan repayments is also problematic. If people can't pay their bills now, they probably won't be able to pay them in three or four months' time either.

So what is the future likely to bring?

If we fast forward to the end of 2020, with current policies I can't see Australia having a much lower Covid-19 prevalence than now. It is also becoming clear that it is the lockdowns that are causing major economic damage. Targeted quarantine and testing are costing little by comparison. The public is already fed up with lockdowns and this approach will have to be abandoned completely on the grounds of cost and public intolerance. That said, the public and the government are both used to panicking whenever new cases soar.

New French Prime Minister Jean Castex recently said that any new lockdown will be targeted, and not imposed nationwide, if there is a major new corona virus outbreak. Many other countries (Iran is the latest example) have concluded that they cannot afford to shut down their economies again in the face of rising infections. Even in the UK and USA the public is increasingly resisting lockdowns.

By the end of the year those countries currently struggling with rapid rates of spread will have reached a high level of herd immunity, and much of the world will have started reopening from the pandemic. Meanwhile Australia, by keeping its borders closed until a vaccine is in place, will suffer continuing expensive international isolation. This will be seen as unsustainable in the long term, vaccine or no vaccine. Eventually, Australia will have to open up, and we will then probably then see an explosion in virus cases. Unemployment will soar further as Jobkeeper ends. A consolation is that treatments may be better refined by then.

There seems to be growing evidence that the herd immunity strategy will be the most successful in the longer term. Sunetra Gupta, professor of theoretical epidemiology at Oxford, says Australia is adopting a "selfish" and "self-congratulatory" approach, which is misguided and will have negative long-term consequences. She said if the Australian government changed its approach and let the virus spread naturally, with intense protections for those most vulnerable, it would in the long term help protect all Australians from future viral threats. Eighty to 90 per cent of the population would get the virus only asymptomatically. The so-called "Swedish model" is generally considered to require at least a 60 per cent infection rate in the community to provide meaningful protection from spread.

The reason that Australia and (especially) New Zealand have had low rates of Covid19 infections to date is that our countries are international travel backwaters. While early restrictions on international travel consequently worked well for us to date, we will be heavily exposed if borders are opened up without an effective vaccine being available.

Given the amounts our governments are spending, we should be mindful of the effects of the flu compared with Covid-19.

Last year more than 800 people, median age notified 86 years, died in Australia from flu. There were 310,011 laboratory-confirmed flu notifications in total. All of this occurred without much publicity, panic, or excessive spending. This year by comparison there have only been 9797 Covid-19 notifications, and 108 people affected by the virus have died. The political reaction to Covid-19 has been one of panicked emergency, and a rush to copy overseas responses.

Future generations will look back at our governments needlessly wasting money and running up debts at an industrial scale (in one of the few examples of bipartisanship I can recall). The most shocking thing of all is that this gross waste of our public monies is being implemented by a supposedly conservative federal government.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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