National leadership needed on interstate borders

Unless we get a COVID-19 vaccine soon, we’re most likely facing years of profound economic and social pain. Every day brings more news of businesses that will never re-open and jobs lost (e.g. earlier this year Arc Dining closed permanently and now the “ongoing viability” of Howard Smith Wharves is under threat, as reported Monday by the Courier-Mail). And we expect an avalanche of insolvencies as JobKeeper is reduced and eventually wound up.

Sure, restrictions have been necessary to control the spread of the virus, to flatten the curve, but, as my old friend and former Treasury colleague Joe Branigan has emphasised in our discussions (e.g. our interview in July), somewhere along the way we changed the objective from suppression, which is realistic, to elimination, which the NZ experience is now showing is unrealistic and extremely costly.

We are now re-imposing or ramping up restrictions based solely on fear and ignoring evidence and logic. The re-imposition of the hard border with NSW, which is causing a lot of pain in border communities, as well as in tourism-dependent regions across the state, is a good example of that. In the words of Currumbin Fair news agent owner, Barrie Parmenter, quoted in today’s Courier-Mail, it’s “bloody overkill.”

Former Premier Campbell Newman told Alan Jones earlier this week that, while restrictions are politically popular in the short-term, they will ultimately be unpopular as the bulk of the population realises the economic damage done (from 5:00):

Qld Chief Health Officer ‘thinks she is the Premier’: Alan Jones

Newman called for the PM to show leadership on border issues, and certainly we do need more national leadership to prevent future poor policy decisions from our state governments.

I cannot recommend the paper Joe Branigan co-authored with Henry Ergas, Getting Australia Safely Back to Work, highly enough. In July, the authors wrote (on p. 7):

In the Australian Federation the closing down of state borders is one of the most dramatic policy measures imaginable. Its economic and social costs are extremely high, and in some cases, are made even higher by the existence of towns and even cities that span state borders. While reopening will need to be sensitive to local conditions, a national set of criteria should be defined, so that the process of reopening borders that are now shut can be transparent and predictable.

The Premier has suggested the interstate border won’t re-open until there is zero community spread in southern states. So it’s possible the border won’t re-open until Christmas or later, which must be massively depressing to tourism operators and their workers. Is this strategy sensible? Is it proportionate? I doubt it. Again, I’d like to know what normative premise Dr Jeannette Young is using in developing her recommendations to the Premier.

Finally, a big shout out to the Queensland Productivity Commission for its excellent report earlier this week Building Economic Resilience in Queensland. It confirmed what I’ve been saying on this blog for a while now, that pre-COVID the Queensland economy was under-performing. It also contains some great analysis of how the Queensland economy and its regional economies have been affected by the pandemic, e.g.:

… the largest adverse employment impacts have been felt in tourism-dominated areas, with the worst affected areas being Port Douglas-Daintree, Surfers Paradise, Maroochy, Noosa and Broadbeach-Burleigh. Cairns and Brisbane’s Inner East have also been heavily affected.

With its decision to reimpose the hard interstate border, the Queensland Government has imposed more and arguably unnecessary pain on those tourism-dominated areas.

This entry was posted in Macroeconomy, Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.

3 Responses to National leadership needed on interstate borders

  1. Jim says:

    Gene

    Great post as always. But as I said in my last post, there are lots of economists (and others) making statements about policies without actually thinking about the attribution of the observed economic impacts of Covid 19 to the actual policy.

    For example, Tourism Research Australia figures show international tourism spend in Qld last year was about $6B (or 25% total international tourism spend). That is not impacted by domestic border closures as the international tourism is almost non-existent. And around 70% of domestic guest nights in Queensland are intrastate tourists (not impacted by the border closures) which, when applied to the total domestic tourism spend in Qld, means the gross spend from interstate tourists in Queensland last year was about $7B (or about 15% of total tourism spend).

    Take away from that, Queenslanders travelling interstate and you get a net domestic spend in Queensland impacted by domestic travel restrictions. Then take away the simple behavioral impacts (people not travelling anyway because of the health risk) and the fact Australian’s disposable income has dropped dramatically (massive reduction on tourism spend because of the recession) and I suspect the actual impact of border closures is probably a single digit % decline in tourism turnover.

    I’m not arguing that tourism has been hit very hard, but attributing the bulk of the impacts to border closures is just sloppy analysis. Perhaps someone should do the numbers properly, so we can actually have an informed debate.

    • Gene Tunny says:

      Thanks Jim. Good points. I think the impact is much more substantial in the regions rather than in SEQ where some operators like O’Reilly’s are doing ok based on the local market. But operators in Port Douglas, Whitsundays, etc. are heavily reliant on visitors from outside Qld.

  2. Thanks for the post Gene,

    I think it’s imperative to separate the question of border closures from the suppression v elimination debate. It appears to me that the case for what our latest muddleheaded medico – Nick Coatsworth – calls “Aggressive suppression” involves virtually all the measures of elimination but at the level of operation distinguishes itself from elimination with two things. One the essentially rhetorical idea that “we’ll never get eradication”. That’s far from proven. New Zealand has shown
    1) the huge economic gains if you can get to eradication (look at the difference between New Zealand’s and Australia’s GDP numbers recently)
    2) that cock ups can set you back.

    It’s still running that experiment.

    Meanwhile, Coatsworth SUPPORTS Melbourne’s lockdown. Now if you support the costs of Melbourne’s lockdown it seems completely bizarre for other states who have achieved let’s ironically call it “aggressive suppression” – i.e. elimination – to sit around while Melbourners pop into their states to go to a party or a footy match.

    So drawing up the drawbridge on state borders as some grave constitutional matter doesn’t cut the mustard for me.

    This is quite separate from Paul Frijter’s case MUCH easier policy – like the Swedes. I’ve always had an open mind for the case he’s made, though I have so little idea of what the counterfactual is – of how it would play with people taking these measures into their own hands that all it is is an open mind.

    The other thing that this debate is a stalking horse for is the calls to ease lockdowns early. If one is going for either elimination or – as defined by Coatsworth aggressive suppression – its costs are so high that you err on the side of caution as you ease out of lockdowns – if you have them that is.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s