ECONOMIC ISSUES

Victorian Stage 4 Restrictions

Insights

What Has Happened?

With a resurgence of COVID cases in Victoria, stage 4 restrictions have been implemented with the hope of curtailing infection rates. Although the lockdown serves as a means of mitigating the risk of ‘chaos’ on a health front, many have argued that the cost of the economic downturn will realisethis ‘chaos’ one way or another. The purpose of this article is to walk you through the channels (see syllabus links) through which the restrictions impedeeconomic activity and in turn impact us as individuals within Australia’s economy.

 

A few elements and discussions surrounding the Victorian lockdown will help provide insight into the scale and magnitude of the circumstance:

  • Stage 4 restrictions that came into effect onSunday the 2nd of August will last for six weeks
  • 5km radius restricting individuals when leaving their home for specific purposes including: exercise (limit of one hour),shopping for food and essential items, caregiving and work
  • Ceasing of community sport, swimming pools and gyms
  • Mandatory wearing of masks in public
  • Restaurants and cafes trading as takeaway businesses
  • Government modelling revealing stage 3restrictions must continue for 6 months

 

It is crucial to consider the fact that this is now the second set of ‘lockdown’ restrictions imposed on the state of Victoria, meaning that businesses and consumer confidence were already beaten down and only briefly given the opportunity to recover.

 

Despite these effects, it is interesting to note a somewhat paradoxical phenomenon – amidst a global pandemic Australian states have increased their weekly spending when compared with that of 2019. Check out the visual below.

COVID's Effects on Spending

In saying this, take care in noting the significant fall in spending during April and continued reduction in Victoria. The excess spending above equilibrium can be attributed to a mix of panic buying of essentials and consumption derived from government stimulus packages.

Syllabus Links

Consumption

Decrease in Consumption

Although consumption has fallen as indicated above and outlined in recent Echo articles through the channel of decreased confidence, consumption, aggregate demand and GDP – online shopping has experienced a great surge.Companies such as Kogan who experienced gross sales increasing by 40% to$760million, have been on the receiving end of increased consumption levels on their products. This same outcome can be seen within the supermarkets whereColes’ revenue has increase 12.3% in the March quarter to an impressive $9.2B.

 

Hence, although GDP has fallen, segmenting growth via industry provides a deeper insight into more pointed COVID effects.

Government Spending Component

To offset the discussed fall in sentiment and confidence along with its effect on aggregate demand, government stimulus such as Jobkeeper has sought to inject expenditure in the G component of AD and supplement the lost expenditure. This underpins the rationale of macroeconomic policy in a downturn.

Distribution of Income and Wealth

With the lockdown having a severe impact on those inhospitality and retail (stores like Myer seizing in person trade and operating online only) workers in these industries tend to be lowly skilled and representative of the lowest quintile. Hence, by considering the disproportionate effect of the restrictions on impeding revenue generation within these industries, not only is unemployment a natural by-product but also underemployment, where workers in both cases are worse off in terms of the income they are able to obtain.

 

In stark contrast, highly skilled roles such as medical professionals and lawyers have no experienced such issues – either through means of continued demand for services or ability to transport the workplace virtually and work from home.

 

This disparity cultivates income inequality within our economy, that is, a movement away from the perfect line of equality on the LORENZ curve below.

 

LORENZ Curve - a measurement of income inequality

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Reference List

https://www.smh.com.au/national/nsw/victoria-s-lockdown-will-be-1b-whack-to-nsw-economy-20200803-p55i5z.html

 

https://www.afr.com/policy/economy/victorian-lockdown-creates-a-two-tiered-economy-20200811-p55khl

 

https://www.theguardian.com/australia-news/2020/aug/06/victoria-lockdown-to-push-australia-unemployment-to-10-and-cost-national-economy-up-to-12bn

 

https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a_GGL&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusiness%2Feconomics%2Fvictoria-lockdown-to-slash-gdp-and-risk-states-aaa-credit-rating%2Fnews-story%2Fd3e28971223d4bc2186be504eda0e99c&memtype=anonymous&mode=premium&nk=c3d335456649a8ec12810d618f92ebfd-1597927221

 

https://www.theguardian.com/australia-news/2020/aug/26/victoria-stage-4-restrictions-melbourne-lockdown-rules-covid-19-stage-four-metropolitan-metro-explained-what-you-need-to-know

 

https://www.smh.com.au/business/companies/kogan-welcomes-retail-revolution-as-sales-profits-soar-20200817-p55mbs.html