• John McDonnell

NSW opening up - a boost for PM and a threat to lockdown states


WA Premier Mark McGowan has some challenges ahead, John McDonnell writes

NSW comes out of lockdown today and the Morrison government is hopeful that this will be the beginning of an economic rebound.


There are grounds for optimism.


Last week, in a speech, the Reserve Bank governor Dr Phillip Lowe said the economy was on the cusp of an economic rebound. According to the Reserve Bank, the Delta outbreak has interrupted the recovery of the Australian economy and GDP is expected to have declined materially in the September quarter.


Despite this, Dr Lowe is predicting that pent-up demand in the nation’s two largest states will drive an economic surge in the final months of the year as Covid-19 restrictions ease, with employers embarking on a hiring spree ahead of a wave of spending from consumers freed from lockdowns.


Dr Lowe has forecast a “bounce back’’ in the economy and a strong jobs market over the next few months on the back of the relaxation of Covid-19 restrictions.


If the NSW economy comes roaring back after restrictions are eased, then this will change the political conversation in Australia. The only Australian jurisdiction whose economy is not affected by the pandemic is Western Australia, where the threats come from another direction. States like Tasmania and Queensland will be anxious to get their share of the pent-up consumer demand that will emerge in NSW and Victoria as their restrictions end. But, to do this, their premiers will have to surrender the power they have gained from enforcing health restrictions and open up their borders


NSW is revealing the dichotomy between health and the economy when political judgements are to be made.


At the moment, there is the prospect of a two-speed economy, with NSW and Victoria roaring back because they have accepted that they have to live with Covid and get their citizens fully vaccinated so they can get their economies back to work. The states that insist on making zero community transmission their objective will likely lag behind. Whether the premiers of South Australia, Queensland and Tasmania are prepared to give up their newfound popularity and places in the limelight, so that business in their states can prosper, remains to be seen.


Federal Labor will also have to choose between a fast-growing economy and premiers who see Canberra as the enemy.


The threat to WA comes from a different quarter. On Friday the Business Council of Australia released a report on the responses to climate change. The report proposed reductions in emissions of 46-50 per cent by 2030. Interestingly, the BCA is dominated by the big resources companies like BHP and Rio. The report proposes that emission reductions should be extended more widely throughout the economy and that they should be enforced through the safeguards system.


This system is already part of Australian law and limits emissions by some companies according to a pre-determined trajectory. The proposal is that this trajectory should decline more steeply and if emitters cannot meet their obligations, they should be allowed to buy carbon credits on local or international markets.


The impact of this arrangement is likely to be heaviest on resource industries in WA. If the imputed carbon price is sufficiently high, then it will lead to a reduction in supply, which will, in turn, lead to a fall in royalty revenue for the WA government.