The Budget reveals what the Government thinks will happen if we get a COVID vaccine next year — and what will happen if we don’t
The coronavirus pandemic has dramatically reshaped this year’s Budget, and forecasts about its continued impact have played a key role in the Federal Government’s economic recovery plan.
From the Budget’s key assumptions, we can begin to see how and when the Government expects things to begin returning to normal — or if they even will.
“The evolution of the health crisis and the lifting of restrictions remain significant risks to the economic outlook,” the Budget papers say.
The Government has predicted that during the next financial year, there will be localised outbreaks that will be mostly contained.
By the end of 2021, the Budget assumes a “population-wide” vaccination program will be in place.
But the Budget also maps out two other scenarios.
In one — the upside — a vaccine is developed and the pandemic is controlled more quickly than expected, leading to a forecast recovery within a few years for some sectors.
But in the other, which assumes we go through 2021 and beyond without a vaccine, there could be at least another $55 billion hit to economic activity.
If the vaccine arrives earlier than predicted
Under its “upside” model, the Government says that if a vaccine becomes widely available by July next year, there could be an increase in economic activity of up to $34 billion by the June quarter 2022.
The “upside” could lead to 1.5 per cent more economic growth than presently expected.
“It is possible that health outcomes both globally and in Australia improve faster than expected if a vaccine is available earlier than expected,” the Budget papers say.
“If this were to occur there would likely be renewed global growth, and increased domestic business and household confidence, which would support stronger consumption and economic activity.”
That relies on confidence from the vaccine and the associated opening up of the economy and easing of restrictions leading to increased spending and investment and the return of lots of international students.
“The boost in consumption and a more rapid easing in restrictions would benefit industries most affected by the health measures, such as accommodation and food services and arts and recreation services,” the Budget says.
But what if there is no vaccine?
If things don’t go well, the Government’s downside model shows how they could play out.
Under that, it is assumed that about 25 per cent of the national economy would be constrained by “severe containment measures” put in to control rolling outbreaks.
“The restrictions under this scenario have an economic impact similar to the average impact observed across Australia’s initial wave of infections and the second outbreak in Victoria,” the Budget says.
The effect of further lockdowns would be wide, with consumer confidence taking a big knock and spending dropping massively.
“Under this scenario, economic activity would be $55 billion lower across 2020-21 and 2021-22 compared with the forecasts, prolonging the national economic recovery.”
Until a vaccine is fully available, general social distancing restrictions are expected to remain, and there are likely to be different rules across the states and territories.
Domestic borders to reopen by the end of this year
The Government has also looked at when borders are likely to open, and when migrants and students will start arriving from overseas.
International arrivals and departures are not forecast to pick up much during next year, with a gradual recovery to begin from 2022.
Permanent migrants and international students will begin coming back towards the end of next year but net overseas migration is expected to fall significantly.
The Government hopes that by 2023–24 net overseas migration will rise to about 201,000 people.
Within Australia, Victoria is forecast to follow its reopening roadmap and is expected to gradually lift restrictions throughout the remainder of the year.
All domestic border controls are expected to be lifted by the beginning of 2021, except in Western Australia, which is assumed to reopen to the rest of the country in April.