The results of the latest Organisation for Economic Co-operation and Development’s (OECD) survey of Australia has credited the national economic approach to the COVID-19 pandemic, also recommending that federal government focus should turn to reviving productivity growth once recovery resumes.
Key to Australia’s economic recovery from the downturn experienced due to the global pandemic, the survey notes, will be the reopening of borders to international travellers. This will allow international students to return to Australia for university, boost bilateral tourism and population growth driven by net immigration.
Treasurer Josh Frydenberg welcomed the survey findings, describing it as an endorsement of the good work of the federal government pre and post pandemic. On Tuesday he issued a statement highlighting the OECD characterisation of the Morrison government’s response from the time of the emergence of the COVID-19 virus as ‘well coordinated’ and the positive impact of Australia’s swift and early ‘macroeconomic policy support’ on the economy.
“The government’s fiscal response was enabled by Australia having entered the pandemic in a strong fiscal position as the federal Budget had returned to balance in financial year 2018-19,” Frydenberg said, noting the benefit of government action on temporary regulatory measures, including insolvency protections and supporting loan deferrals, to effectively buffer against the economic shock.
“The strong economic management of the pandemic has meant that Australia’s downturn in 2020 was less significant than in the majority of other OECD countries and ensured the economy bounced back rapidly,” he said.
According to the OECD survey, Australia had enjoyed 28 years of uninterrupted growth until coronavirus hit. An economic downturn has been a consequence of pandemic-related ‘containment measures’ like lockdowns and state border closures, the survey noted, with a 2.5% drop in GDP growth in 2020.
“The recovery may be more gradual than in past episodes, as it will occur in an environment of higher virus transmission,” the survey found, making GDP growth projections of 4% in 2021 and 3.3% in 2022.
The survey recommended that Australia’s short-term fiscal policies should be responsive to how the pandemic unfolds. An important part of this responsiveness was ensuring all eligible adults received were vaccinated against COVID-19.
The OECD warned that hopes of a quick turn-around for the Australian economy also depended on whether other states beyond Victoria, NSW and the ACT experienced additional community transmission events.
“An acceleration in vaccine rollout could enable a faster reopening and a rapid pick-up of household consumption, given the stock of excess savings,” the survey found.
“On the other hand, were significant COVID-19 outbreaks to occur in other states, then the economic shock could deepen. Any ratcheting up of tensions with China could further weaken trade activity.”
Frydenberg pointed to the OECD’s GDP growth predictions and said that these figures showed the resilience of Australia’s economy ‘despite the headwinds posed by the Delta variant and ongoing lockdowns’. The treasurer added that because of the federal government’s strong economic management during the pandemic, the 2020 economic downturn the country experienced was less significant than in most other OECD countries and set the stage for a rapid bounce back.
“With more than 43% of Australians fully vaccinated, progress towards our nationally agreed targets of 70 to 80% is accelerating,” Frydenberg said.
“Encouragingly, the Survey notes a substantial quickening in the pace of the vaccine rollout and that ‘once the economy reopens, household consumption could also pick up surprisingly rapidly given a high stock of excess savings’,” he said.
Among its recommendations for Australia’s economy, the OECD advised for national policies to focus on reducing barriers (regulatory, administrative and financial) for high-potential young firms. It also suggested that Australia review two issues to help the economy brace for future shocks: to rethink relevant institutional frameworks related to fiscal and monetary policy; and ensure an adequate social safety net.
“In general, post-pandemic reforms should seek to address long standing challenges that existed prior to COVID-19 such as stagnating growth in living standards and weaker productivity growth that had led to disappointing wage outcomes for workers,” the OECD said.
“With young and low-paid workers now hit hard by the COVID-19 crisis, effective activation policies will be key to avoid scarring effects on the long-term unemployed and to support job reallocation.“
Another OECD recommendation to the Australian government was that future fiscal strategy should be framed in the context of future budgetary pressures. It also advised that an independent fiscal institution be appointed to monitor this strategy.
Current OECD boss Mathias Cormann was a Liberal senator for Western Australia in Scott Morrison’s government before he took on his current Secretary-General role in June, 2021. He was the Australian minister of finance and leader of the government in the senate.