With the changing nature of COVID — particularly the Delta variant — and its major impacts on the Australian economy, there are a number of different aspects that you can look into for HSC Economics.
We’ve got you covered today as we look into Australia’s response to the COVID outbreak with the Delta Variant.
Let’s get analytical!
Over the year, the Gross Domestic Product (GDP) rose 1.1% in the March quarter, and 0.8% in the June Quarter. In turn, the September quarter is predicted to show an output of 2% to 3.5%. This increase basically backtracks any of the economic gains that were achieved in the last 12%.
Looking at trading, the stronger export prices, especially in iron ore and LNG (liquified natural gas), stimulated an increase to 7.4%. This contributed to a 3.5% in nominal GDP
The household saving ratio saw a change from 11.6% to 12.2% — this is calculated by taking the net household savings and dividing it by the gross household disposable income.
In terms of customer sentiment throughout July and August, it dropped down 4.4%. This can be really closely linked to lockdown and reduced work, as consumption slows down with consumer spending at a low.
Along similar lines, we see business confidence drop significantly into the negatives. Sitting at 20% in May, business confidence went down to 11% in June and then down to a low of -8% in July.
There are two key drivers to note, consumption and investment, both of which have decreased significantly.
With regards to exports, and iron ore in particular, these prices were in an incredibly strong and stable position over the past year, even reaching record highs. However, these prices are not being sustained, and are starting to drop.
Unemployment and underemployment unfortunately goes hand in hand with the COVID lockdown. With consumer spending at a heavy low, many businesses have been struggling to keep all their employees at the same capacity prior to lockdown.
The Australian unemployment rate dropped really low to 4.6% and the underemployment rate is sitting at 8.3%. The participation rate (that is the number of people at a working age who are part of a workforce) is at 66%, which is essentially where it was at pre-COVID. Similarly, the youth unemployment rate has remained reasonably constant at 10.2%.
Looking at the Consumer Price Index (CPI), there was an increase in the June quarter this year, as it rose 0.8%.
The HomeBuilder program under the Federal Government, alongside state-based housing construction grants, have continued to impact the rate of new homeowner purchases.
In the June quarter, we also saw the prices for new dwellings drop 0.1%. If there was no offset supplied by the housing grants, this rate would have risen 1.9% due to demand in housing construction materials and labour payments.
The most substantial rise we’ve seen is in furnishing, household equipment and services, which is 16.9%. With everyone in lockdown, and multiple family members at work or school through their laptops, homes have had to be adapted into full time learning and office spaces. With consumers getting used to the concept of working and learning from home, the expenditure in homemaking products and lifestyle furniture has risen.
A slightly unexpected increase is the cost of transport, sitting at 10.7%. With the reduced travel due to lockdown, you would expect these transport measures to decrease, however this rise is likely attributed to the growing oil prices.
We can also look at HSBC Australia for critique, where their Chief Economist, Paul Bloxham noted that the slowed population growth impacts the country’s economic speed limit.
This has been further impacted by COVID and the lockdown restrictions. This speed limit is also referred to as the potential growth rate, which is normally around 2.5% to 2.75%, but has now fallen to 1.3% to around 1.6%.
With many businesses tight with monetary resources, workers have seen the largest cut in wages, and consequently purchasing power, in the past 20 years.
The ABS (Australian Bureau of Statistics) noted a 1.7% growth in wages over the past year where inflation also rose, by 3.8%. This 2.1% fall is the greatest we have seen since the middle of 2001, and is amidst the greatest boom in house prices and average mortgages in over 30 years.
ABS’ Head of Price Statistics, Michelle Marquart, recognised this as one of the lowest ever records, at 0.4%. “Apart from a few isolated examples of skills shortages placing pressure on employers to meet expected market rates, the [0.5 per cent] private-sector wage growth recorded over the quarter was generally subdued,” she said.
Government Response to Lockdowns from the Delta Variant
The government’s response to the lockdowns that came about, due to the Delta variant, can be analysed by the two new payment programs that were formulated in this time. The COVID-19 Disaster Payment and Pandemic Leave Disaster Payment were created to assist workers affected by reduced or lost work as a result of the pandemic.
The COVID-19 Disaster Payment is provided to those whose income is negatively impacted by the lockdowns, whilst the Pandemic Leave Disaster Payment is for workers who have to self-isolate or quarantine for a given period after being a close contact of a positive case.
Both these payment programs are supplied under the National Recovery and Resilience Agency (NRRA) as grant payments, as opposed to payment under the Social Security Act (1991) as income support.
COVID Disaster Payment
On June 3rd, 2021, the COVID-19 Disaster Payment was launched as a lump sum for those who lost work due to the lockdown. In turn, the disaster payments are not considered taxable income, and are only provided during the eligible lockdown periods.
The COVID Disaster Payment provides three tiers of rates based on eligibility and pre existing income support:
- $200 a week for workers who received income support and lost 8 or more hours of work a week due to lockdown
- $450 a week for workers who lost 8 to 20 hours of work a week due to lockdown
- $750 a week for those who lost more than 20 hours of work a week due to lockdown
Pandemic Leave Disaster Payment
This payment is given on days of self isolation due to being a close contact to a positive COVID case. This entitles the individual to $1,500 for each 14-day period that the person must self-isolate for. Unlike the COVID Disaster Payment, the Pandemic Leave Disaster Payment is taxable.
By July 8th, 2021, 14,944 grants for the Pandemic Leave Disaster Payment were made out of the 17,123 claims. This was a total payment of $22.4 million, most of which came from the August-September period in 2020.
Child Care Support
$40-$50 million a week is being put towards supporting child care centres. This support package is said to provide 25% of a centre’s revenue prior to lockdown if it has had to ask parents and children not to attend. This is also contributing to 40% of before and after school care revenue prior to lockdown.
The Child Care support package is said to provide relief to around 3,600 services in Sydney and 1,200 services across Melbourne and Canberra.
Overall Government Spending
Let’s take a look at the big picture.
Recent federal data has shown that one in 10 people in NSW, that is 882 000 people, have collectively received $2.5 billion in assistance through COVID Disaster Payments, $200 income support payment and Pandemic Leave Disaster Payment. Holistically, this looked like $38 a week, per New South Wales resident, in comparison to $25 a week, per Victorian resident.
Due to the severe financial fallout from the lockdown, the Reserve Bank of Australia has had to pause their plans to reduce government debt purchases. The initial aim was to bring these debt purchases down to $4 billion, from $5 billion, over the month. However, this plan has been delayed so that economic support can be continued over the next few months as we ease out of this lockdown period.
These aspects of current economic activity should give you a handful of great real life examples to apply in HSC Economics! Consider how a number of these components impact one another and are heavily interrelated to strengthen your Economic responses.
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Nandini Dhir is a Content Writer at Art of Smart and is currently studying a Bachelor of Arts (majoring in Marketing) and a Bachelor of Advanced Studies (Media and Communications), as a Dalyell Scholar, at Sydney University. She enjoys covering local issues in her area and writing about current events in the media. Nandini has had one of her pieces published in an article with the Sydney Morning Herald. In her free time, Nandini loves doing calligraphy, ballet, and sewing, or is otherwise found coddling her cats.