Australian Business Council Warns of $400 Billion Economic Hit Unless Urgent Reforms

Governor of the Reserve Bank of Australia, Philip Lowe, makes a speech on March 19, 2020 in Sydney, Australia. (Brendon Thorne/Getty Images)

On April 27, the Business Council of Australia (BCA) said the Australian economy could take a $400 billion hit if lockdown restrictions continue for six months.

They urged the federal government to act on comprehensive reforms needed to get the post-pandemic economic recovery on the right track—fast.

The analysis released by BCA on Monday, April 27, highlighted that the way the recovery will be managed is critical to avoiding the trap of long-term unemployment for those who have lost their jobs during the economic crisis induced by the CCP (Chinese Communist Party) virus, commonly known as novel coronavirus.

The research summary, quoting modelling by Ernst & Young, illustrated how the duration of restrictions will impact the path of an economic rebound.

According to the recovery profiles chart, if restrictions stay in place for 6 months, Australia’s gross domestic product (GDP) would suffer a loss of $402.6 billion (US$259 billion) or 20.7 percent in the 2020 calendar year—under a “U-shaped” recovery profile.

In comparison, the loss would be reduced to $278.3 billion with a three-month “V-shaped” recovery, and a $197.3 billion if the lockdown restrictions last for only one month.

The research also shows that workers in the accommodation, food, retail, construction, and manufacturing areas have been hardest hit in terms of full-time job opportunities. They are also at the highest risk of falling into long term unemployment, along with older workers, and those with high school or below education.

Making the Right Choice

Business Council chief executive Jennifer Westacott, while confident that Australia is in a good position to plan for a strong recovery, said that the government needs to act on quick reforms covering taxation, industrial relations, and training to make sure that no one is left behind in the recovery.

“There can be no trade-off between the health, social, and economic recovery but the most vulnerable members of our community will pay the highest cost of failure on any front,” she said in a media release.

Westacott argues that one of the key questions the government needs to ask when making decisions about the recovery is: “Does this create a new job, a secure job, better-paid job, or does it get someone back to work?”

She also advocated for a simpler workplace relations system that works better for both employers and employees, an efficient and competitive tax system that attracts investment, and a training system that fosters rapid upskills. She said reforms should aim to “get new investment flowing and get started on the bigger, more long-term growth plan. ”

A United Sense of Reform Urgency

The call from the BCA reflects a sense of urgency for broad changes to the economic system shared by governments and businesses recently, as the nation looks to rebound from the crisis amid a consistent flattening of the CCP virus infections curve.

At a press conference on April 16, Prime Minister Scott Morrison said an aggressive pro-business investment strategy must be pursued to get the economy back on track, implying that tax cuts, deregulation, and industrial relations reform are on the agenda.

“We are going to have to have economic policy measures that are going to have to be very pro-growth, that are going to enable businesses to employ people, that will enable businesses to invest and businesses to move forward, ” he said.

Reserve Bank Governor Philip Lowe urged governments to seize the spirit of co-operation to ­reform the economy in a speech on April 22, which included fixing “the way we tax income generation, consumption and land. ”

Lowe said the crisis would have “reverberations” through our economy for some time to come and that the best way of dealing with these was to “reinvigorate the country’s growth and productivity agenda.”

“As we look forward to the recovery, there is an opportunity to build on the cooperative spirit that is now serving us so well to push forward with reforms that would move us out of the shadows cast by the crisis,” Lowe said.

Treasurer Josh Frydenberg has started to consult with businesses about reform options during a video conference meeting with corporate leaders on April 22.

“We are absolutely focused on reforms that encourage the investment, innovation, new hires of employees and investments in capital,” he told Sky News on April 23.

He admitted that the Australian company tax rate is still very high by international standards, indicating that “we’ll look at tax reform as an area of interest because we’re always looking for opportunities to cut taxes.”