The thousands of people diverted from their normal work to prepare for and fight the fires represents an opportunity cost in terms of output foregone in their day jobs.
Spooked consumers will weigh on GDP. A recent ANZ—Roy Morgan poll showed consumer confidence fell by a “massive” 12.9 per cent for ‘current conditions’ while ‘future conditions’ slumped to its lowest level since 1994.
Putting together estimates of all these costs will be a tough job for the Australian Statistician. As a rough ballpark figure, the impact of these fires could cut a half to 1 per cent point off March quarter GDP.
Forecasters in Australia have generally been expecting a fairly soft economy e.g. NAB and Westpac forecast Q1 GDP at 0.5 per cent. Hence, if the fires detract a fraction over 0.5 per cent from GDP, it is quite possible that Australia’s economy will record a negative quarter; the first since the March quarter 2011’s -0.3 per cent.
Large natural disasters, such as the current bushfires, are usually followed by a period of strong rebuilding, which provides a substantial positive boost to GDP and that seems likely to be the case from the June quarter this year.
To mitigate the reoccurrence of the recent human, environmental and economic costs will require greater and more targeted investment in fire prevention strategies and firefighting capabilities. But to reduce our chances of incurring even higher costs in the future will require that we address a key underlying contributing factor: climate change.
Australia needs to act now to reduce our reliance on fossil fuels, which accounted for 27 per cent of total exports in 2018-19. As the world moves away from polluting energy sources, Australia will need to transition to more sustainable industries.
The International Energy Agency, a Paris based intergovernmental organisation, estimates that global coal usage will drop by 36 per cent by 2030 and 62 per cent by 2040, under Sustainable Development Policies. Australia will find it increasingly hard to export coal in future.
The 40,000 people who work in coal will need to find employment in new industries when the work runs out. Structural adjustment policies can help. Good examples are the policies used for the textiles, clothing and footwear sector wind down and the adjustment polices which underpinned John Button’s 1980s car plan. It should be a government priority to invest in such policies for coal region workers right now.
The future is not all doom and gloom. In the regions, tourism, agriculture and computer-based jobs can thrive on our NBN-updated internet platforms. Growth in renewable energy facilities will drive regional growth. Canberra is already 100 per cent reliant on renewables, surrounded by solar and wind farms, as anyone who has driven around the Canberra region will know (if they could see the facilities through the bushfire smoke).
Professor Ross Garnaut’s new book, Superpower, identifies a rosy future, foreseeing Australia becoming a major exporter of clean energy, because of our comparative advantage in renewables. State governments have come to the party early. Just recently, the NSW Environment Minister, Matt Kean, announced the creation of a ”renewable energy zone’” in the NSW central -west. It slates projects delivering 3000 MW of renewable energy, enough to power 1.3 million homes.
High school economics tells us that the first best solution to mitigate climate change is to charge a price for pollution, currently free in Australia. In the absence of resolve by our politicians to implement a first best solution, we will need to rely on less economically efficient mechanisms to reduce climate change. State politicians across the country seem to understand the economics of these issues and are making progress. For the sake of our beautiful natural heritage, our people in bushfire prone areas and for the economy, let’s hope that the pace of this transition will accelerate from here.