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Border closures: Crucial detail underpinning Budget

·6-min read
Industries are warning this Budget assumption has hidden thorns. (Image: Getty).
Industries are warning this Budget assumption has hidden thorns. (Image: Getty).

Treasurer Josh Frydenberg has said Australia’s economy is “roaring back”, however economists and industry leaders are concerned that one assumption in the document will pose major challenges into the future.

The Budget assumes Australia will effectively contain COVID-19 outbreaks and will lift most domestic restrictions over the coming year, with temporary and permanent migration to resume from mid-2022.

It also expects borders to remain closed with inbound and outbound travel to remain suppressed until mid-2022.

However, reducing the $617.5 billion Government debt and increasing growth will be difficult to do with closed borders, the Committee for Economic Development of Australia (CEDA) said.

“We will now need to set another record of sustained growth to manage the twin challenges of an ageing population and our new fiscal reality,” CEDA chief economist Jarrod Ball said.

“This will require a significant and sustained lift in business investment, the likes of which we have not seen in a decade or more, and will be very challenging to achieve while borders remain closed.”

He said Australia needs to urgently invest in its quarantine capabilities or risk missing out on not only tourists but crucial skilled migrants.

The Budget papers show net overseas migration is expected to drop 96,600 people this year and another 77,400 in 2022.

“Population growth is at the lowest level in a century. This is a stark shift for a country that enjoyed one of the highest rates of population growth among advanced economies in the last decade,” Ball said.

“With Australia’s slow vaccine rollout and the likelihood of quarantine remaining in place for at least the next two years, the Federal Government must move urgently to expand quarantine capacity."

The Property Council of Australia also expressed concerns over weakened population growth and called on the Government to improve the country’s quarantine capacity.

It said population growth will soon become an “anchor” for the economy, and a problem that could dent industry confidence.

“Growth in GDP, employment and dwelling investment all shift down gears dramatically as the reality of negative net overseas migration takes over,” he said.

“If borders need to stay closed based on health advice, Australia should avoid getting stuck in a binary choice of opened or closed borders and instead upscale our quarantine capacity.”

He suggested the Government look at fast-tracked pre-travel testing as a priority, while also exploring purpose-built quarantine facilities.

“What the Budget makes clear is that Australia cannot afford to wait until this problem hopefully sorts itself out at the end of 2022.”

The assumption behind the assumption

Frydenberg’s Budget assumes travel will gradually open from mid-2022, but that’s also contingent on another major assumption: that Australia will have a population-wide vaccination program in place by the end of 2021.

However, Australia is currently only vaccinating 400,000 people a week, meaning that at this rate, many young people won’t begin their vaccination programs until April 2022.

To meet the Budget projection, the country will need to more than double the number of doses administered a week to 1 million.

Speaking to the ABC however, Frydenberg defended the assumptions.

“Those assumptions are based on the best available evidence to us,” he said.

“We saw more than 400,000 doses rolled out over the course of the last week. More supply is coming online. So that is the assumption about vaccines.

“With respect to international borders, it’s quite a conservative, cautious assumption that international borders will gradually reopen from the middle of next year.”

The industries in the firing line

Even if the Budget meets its assumptions, the tourism, aviation and university sectors are warning they will struggle to grow without more support.

Analysis from Moody’s Investors Service released prior to the Budget’s publication on Tuesday warned that the recovery is set to be uneven across corporate Australia.

“Border closures will weigh on air-travel demand and tourism industries,” it said.

“Domestic borders remain prone to sudden closures due to sporadic localised outbreaks, delaying airlines' recovery in the first half of 2021.”

The Tourism and Transport Forum (TTF) also blasted the Budget as leaving the sector “high and dry”.

The border closures and lack of international tourism has cost the industry $4 billion a month, TFF CEO Margy Osmond said, calling for more significant investment.

“Our industry is crying out for one thing above all else from our governments, and that one thing is certainty. A gradual recovery for international tourism assumed to occur after mid-2022 as outlined in the budget papers, is not a decisive timetable for reopening,” Osmond said.

“Our tourism industry, the major ongoing economic casualty from COVID with hundreds of thousands of jobs lost so far, has missed out on any major new funding which, put simply, is a recipe for further job losses for our sector.”

Prior to the Budget, the Government announced a $1.2 billion package including subsidised flights and direct payments to travel agencies and tour companies.

However, Osmond said more still needs to be done.

“As we have outlined for well over a year, tourism was the first to be hit by the double whammy of last year’s bushfires and then the ongoing economic impacts of COVID and we will be the last to recover as long as international borders, with the exception of outside New Zealand, remain shut,” Osmond said.

“We are at risk of becoming one of the only major countries in the world without a comprehensive and well understood timeframe and clear targets for re-opening.”

Universities Australia also blasted the Budget’s border forecast, warning the sector will struggle without international students.

Universities Australia’s Chief Executive Catriona Jackson said the Government needs to work with the sector to develop programs allowing students from low-risk countries to travel to Australia.

“The sector took a $1.8 billion revenue hit last year. Universities Australia conservatively estimates at least another $2 billion will be lost this year – against 2019 actual operating revenue,” she said.

“With assumptions around borders being shut until mid-2022 now baked into the Budget, the picture for universities will get worse. There will be significant flow-on effects for the nation’s research capacity and jobs inside and outside universities.”

Find all of our Federal Budget 2021 coverage here, and get it delivered to your inbox via our newsletter here.

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Image: Yahoo Finance
Image: Yahoo Finance
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