No snapback until Sydney and Melbourne return to normal

No snapback until Sydney and Melbourne return to normal

While re-opening the bars and beaches of Adelaide and Perth might be a starting point, it’s a long way from the endgame.

And that endgame, to be frank, is getting NSW and Victoria, Sydney and Melbourne, back to normal.

For one thing that was true pre-virus remains true post-virus is that the Australian economy is utterly dependent on our two largest states and their two capital cities.

Combined, NSW and Victoria account for about 57 per cent of the nation’s population and a similar proportion of Australia’s annual economic output.

In NSW, Sydney accounts for about 65 per cent of the state’s population. Melbourne is even more dominant, with almost 77 per cent of Victorians calling the city home.

But it is the central business districts of the two cities that are the real economic powerhouses. Combined, the CBDs – an area you can measure in terms of AFL or rugby league grounds – account for more than 10 per cent of Australia’s entire GDP.

In other words, you shut down Bourke Street or Pitt Street and a few neighbouring avenues and you’ve knocked a huge hole in the Australian economy.

Australia has a number of economic weaknesses, at both the macro and industry level. Australian universities, for instance, are clearly dependent on foreign students. Our love affair with houses as a form of wealth creation has been propped up by monetary and fiscal policy for too long.

And the use of a huge casual workforce (including foreign students and skilled migrants) means any disruption to the economy means millions of people face becoming a financial underclass.

The queue for emergency food relief at a Southbank charity in Melbourne. The coronavirus outbreak has highlighted the nation’s dependence on foreign students and casual workers.Credit:Penny Stephens

The dependence on Sydney and Melbourne, however, has never really been seen as a weakness.

As a nation, we’ve fallen into the trap of believing our own myths. Those myths include that we are a nation of hard workers with calloused hands who can camp by billabongs living on a bag of flour and jar of golden syrup.

Instead, at the first sight of trouble we mounted assaults on the aisles of Coles and Woolies looking for loo paper, tinned tomatoes and dried pasta as if the four horseman of the apocalypse were at the door.

Dorothea Mackellar’s view of Australia as a land of sweeping plains, mountains rages, droughts and flooding rains ignores the reality of today. We are a land of suburbs, clogged roads, cluttering trams and coffee shops.

While Western Australia is our most “outward” facing state, with its international trade the equivalent of 71 per cent of its gross state product, it is heavily reliant on the rest of the country.

Despite running a huge trade surplus with the world (mostly China), it runs a $40 billion deficit with the rest Australia. And most of that deficit is with NSW and Victoria.

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The Andrews and Berejiklian governments have taken some of the harshest steps of all the premiers and chief ministers to protect their citizens from the coronavirus pandemic.

Yet as Queensland, South Australia and the Northern Territory effectively closed their borders, the Victorian-NSW border remained open. It was partially a recognition of the important links between the two states and that without that link both would struggle even more.

On top of the federal government’s unprecedented financial assistance, much of which will flow into NSW and Victoria, the two states are also throwing billions into support now and will likely embark on a post-virus stimulus to get their economies moving.

If these efforts stall, or take longer than expected, then the national economy is going to falter.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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