Australia’s economic recovery from the coronavirus crisis will be dragged backwards by swingeing restrictions on industry in Victoria that will see half a million workers in the state thrown out of employment, economists say.
Announcing a six-week shutdown of some industries and crippling restrictions on others – including construction, a crucial engine of Victoria’s economy – the state’s premier, Daniel Andrews, said he estimated the move would add 250,000 workers to a similar number who have already been stood down because of pandemic restrictions.
This is about a seventh of the workforce in Victoria, which contributes a quarter of Australia’s economic output and was the fastest growing state in the nation before the Covid-19 outbreak.
Cuts that include forcing meat works to operate under strict conditions at two-thirds capacity and slashing the number of workers on most large construction sites by 75% are also expected to cascade through the economy, hurting livestock farmers and sending some building subcontractors broke.
Meat supply to Victorians is expected to reduce, the meat industry said on Monday.
While essential services such as supermarkets, bakers, butchers and chemists are to remain open, much of the retail industry, which has been troubled for years and took a crippling hit from the first wave of the virus, will be completely shut down for the duration of the new restrictions.
“We’re still digesting what it will mean for activity levels, but clearly it’s going to have a significant negative impact on Victoria’s economy – we’re expecting a further decline in GSP [gross state product] in September from the June quarter, and given Victoria’s share of the national economy it will obviously put a material drag on the pace of recovery for the national economy,” said Sarah Hunter, the chief economist at BIS Oxford Economics.
“But it is worth noting that the restrictions are less severe than other economies globally, some construction activity is still allowed for instance, although this is a very marginal positive given the overall size of the step down.”
The Asia-Pacific economist for jobs website Indeed, Callam Pickering, said Victoria had already been badly weakened by the first coronavirus wave.
“Job postings in Victoria have declined sharply, compared with further improvement across the rest of Australia,” he said.
“That divergence is likely to widen as stage four restrictions greatly limit the scope of economic activity.
“A prolonged lockdown in Victoria will slow the national recovery, with its impact spilling over to businesses and industries nationwide.”
He said any federal government response needed to “address its failure to adequately care for casual workers and those with poor job security”.
“That sits at the very core of Victoria’s inability to contain the spread. When people are concerned about their job security or making rental payments or putting food on the table then they will make decisions that they otherwise wouldn’t.”
Jobkeeper needed to become more inclusive and cutting jobseeker benefits “would be nothing short of cruel for Victorians”, he said.
Bans on areas including retail begin at midnight on Wednesday while restrictions to industries such as construction and abattoirs start at midnight on Friday.
About 20,000 pre-school workers are also set to be thrown out of work on Thursday due to an earlier state government decision to shut early childcare in Melbourne for all but the children of essential workers. They are ineligible for jobkeeper payments due to a federal government decision in June.
Victoria’s looming economic woes, which come on top of a pandemic-induced recession already gripping the nation, forced the prime minister, Scott Morrison, to announce what he dubbed a “pandemic leave disaster payment”, modelled on an existing state government scheme.
Details of how the scheme is to operate were not immediately available on Monday evening, but it appears to fall short of full paid pandemic leave, which was jointly demanded by business and unions on Monday. Morrison said it would provide $1,500 a fortnight to people who are unable to work because they have contracted Covid-19 but are not eligible for other payments.
Andrews said businesses hit by the new restrictions would be eligible for grants of up to $10,000. He said he had also been in discussions with Morrison about support for Victorians through the jobkeeper and jobseeker programs, which are due to be reduced from the end of September, and would “have more to say soon” about mortgage repayments and rents.
Currently, people who have lost income due to the pandemic are able to put off making home loan repayments until at least the end of next month, and it is illegal to evict Victorians until around the same time.
Accountants warn that unless jobkeeper rules are changed, businesses that saw a recovery once the first wave of restrictions was loosened but are set to suffer huge drops in income from the new lockdown will not be eligible for the payment.
The rules should be changed to allow businesses that showed a substantial fall in revenue over six months to receive jobkeeper, Craig Whatman, a partner at accounting firm Pitcher Partners, said.
It is understood the Victorian construction industry, which has suffered two outbreaks of coronavirus despite an industry-funded program of on-site testing, lobbied hard to water down restrictions on the industry.
“There are a significant number of subcontractors who won’t survive a significant contraction, and that’s the truth,” a senior industry source told Guardian Australia.
“We’re talking about guys that [each] employ hundreds of people.”
Contractors and subcontractors are also likely to go to war with each other over who should pay the cost of delaying projects, the source said.
Australian Meat Industry Council chief executive Patrick Hutchinson said the abattoir restrictions “will lead to a 30% reduction in supply chain throughput overall, based on discussions with our membership”.
“It is our opinion that this will lead to a reduction in saleable meat in the Victorian community,” he said.
While meat works have been restricted, the farming sector has been permitted to continue business as usual.
“We understand the trust that has been placed in our sector and that we are accountable for keeping Victorians fed during this state of disaster,” the president of the Victorian Farmers Federation, David Jochinke, said.
“Victoria is Australia’s food bowl. We are Australia’s largest producer of food and fibre and the nation’s largest exporter.”
He said farmers were worried about issues including labour shortages and border closures that make it more difficult to move agricultural products around the country.
Andrews said the new restrictions would have “a very significant impact” on the economy.
He said continuing with previous restrictions, which were the strictest in the country, would take six months to get results.
“We cannot do a six-month strategy on this in the hope that it might work with tiny, gradual decreases each couple of days,” he said.
“We have to do something that is very painful, but will drive these numbers down and drive them down as quickly as possible.”