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The Fortress Australia and Enterprise Australia scenarios will shape national income, industry, household consumption and employment outcomes.
GDP growth (i.e. growth in our national income) is an imperfect measure of welfare, but is the standard metric by which the health of economies is measured.
Enterprise Australia gets Australia’s GDP back to its previous growth trajectory (see Figure 3). This is a result of a number of factors including strong population growth, digitisation related productivity gains and smarter regulation enabled growth. In 2030 the economy is $7.4 billion (or 0.3 per cent) larger than it otherwise would have been.
Even though Enterprise Australia gets the nation back on track, shutdown related losses of $279 billion are expected over the next two years. The largest peak to trough losses are seen in the retail and consumer and real estate sectors, falling over $20 and $17 billion respectively.
In the long term, the actions taken in Enterprise Australia, will see potential additional losses of $127 billion reduced to $63 billion. This represents $64 billion of additional economic activity, a 50% improvement. Total losses to 2030 are reduced from $406 billion, projected without conscious policy changes, to $342 billion (see Figure 4, below).
Fortress Australia has a detrimental impact on economic growth. The economy is over $49 billion smaller in 2030, equivalent to a 1.9 per cent reduction in the size of the economy under our pre-COVID-19 growth trajectory. Lost activity from 2022 increases from $127 billion to $400 billion, resulting in total losses of around $680 billion to 2030.
Figure 3: Real GDP by scenario, 2018-2030 ($2019-20 billion)
Low levels of immigration, reducing the flexibility and levels of skills in the Australian workforce, and the ongoing support of less efficient businesses (often small and medium sized businesses) combine to dampen productivity growth. While protectionist trade policy and limited access to foreign direct investment (FDI) stifle industry’s ability to grow out of the crisis
Figure 4: Impact on real GDP by scenario, 2020-2030 ($2019-20 billion)
In terms of economic growth per person, the medium to long term outcomes are broadly similar to those of GDP levels (Figure 5). However, Fortress Australia does see an initial increase in GDP per capita as population, the denominator in the equation, fails to bounce back due to low levels of immigration. This short term hit soon fizzles out as Fortress Australia’s policies stifle growth from 2023 onwards. In the long run, GDP in Enterprise Australia is $1100 per person higher than under Fortress Australia.
Figure 5: Impact on real GDP per capita by scenario, 2020-2030 ($2019-20)
Like most developed economies, Australia has high levels of interdependence between sectors and along supply chains. As GDP changes, the value of goods and services produced in specific sectors typically follow a similar trajectory. So it is not surprising that Enterprise Australia results in the highest growth across sectors.
For the first time in recent memory, there’s a generation of Australian’s who have lived and worked through a global financial crisis (2008-09) and a pandemic, some are experiencing this in little over their first decade in the workplace. As seen after previous crises, there is an expected reduction in households’ propensities to consume, which disproportionately affects discretionary goods.
The retail and consumer, and entertainment and media sectors see total lost output of $59.6 billion and $7.8 billion. Losses for these sectors are minimised in Enterprise Australia, as a growing population helps reduce lost output by $12.0 billion and $0.6 billion respectively.
Fortress Australia’s nationalistic positioning in response to heightened geopolitical uncertainty sees the federal defence annual budget increase by 10%, and the sector sees gains over $24 billion of output to 2030. Total sector activity in 2030 is $3.2 billion higher, at $34 billion, than under our pre-COVID-19 trajectory. A spend of this magnitude, surpassing the long-term commitment of growing defence spending to 2% of GDP, would likely only occur where geopolitical uncertainty increases far beyond current levels.
The largest sectors in the economy (as modelled), stand to gain the most in dollar terms in an Enterprise Australia. Sectors that refine raw materials or create engineered products (e.g. aluminium, steel, paper and wood products) gained back $15.4 billion of lost activity to 2030. The ‘retail and consumer’, ‘construction’ and ‘banking and capital markets’ sectors see $12.0 billion, $11.0 billion, and $5.6 billion of additional activity respectively (see Figure 6).
Figure 6: Impact on real GVA by scenario, 2020-2030 ($2019-20 billion)
This report is not related to the Australian Manufacturing Workers Union (AMWU) pre-COVID-19 report of March 2019 titled 'Australia Rebooted' and PwC is not affiliated with the AMWU.
COVID-19 Market Response Leader, PwC Australia
Tel: +61 2 6271 3229
Chief Economist & Partner, PwC Australia
Tel: +61 (2) 8266 4611