Same, same – but different?

At the time of writing, Melbourne and the rest of Victoria are waiting to know when (if?) the current lock-down will be lifted.

Just to recap: Melbourne is presently in its sixth shut down since March of last year, and the fourth so far of 2021. All combined, Melbourne has now clocked up more than 200 days under lock-down. The present measures were introduced on August 5, originally scheduled to last one week, and came barely a week after the previous lock-down ended. Lock-down #6 was soon extended by another week, and then by another two weeks, and will now extend beyond September 2. This is not counting the “stay at home” directive that was in place for most of 2020, along with the various limits and restrictions on social interaction, workplace capacity, public gatherings, hospitality, events, sport, gyms, retail, schools, funerals and weddings. We also have a night-time curfew for good measure.

The following two pictures convey similar human sentiments, but they also represent very different responses to the situation we are living under. One is an example of the numerous messages of hope and encouragement that I see around my neighbourhood on my statutory daily walks. The other is a discarded placard seen a few days after an anti-lock-down protest.

The first reflects a “let’s grin and bear it” attitude – nobody likes being in lock-down, but we are all in this together, and if we can just remain positive, we will come through it OK.

The second is more reactive, and emotionally charged – the enforced isolation brought on by the lock-down is having an enormous effect on peoples’ mental health.

It’s hard to argue with either message….

I thought I would be able to cope better with each successive lock-down. Building a daily routine, maintaining some physical discipline (courtesy of the permitted daily exercise), managing at least 2-3 AFDs per week, treating myself to a nice restaurant-prepared meal now and then, catching up on films that I didn’t get to see at the cinema. But despite the recurring groundhog scenario, this lock-down seems different, and much harder to manage mentally.

First, the uncertainty of when it will end creates a sense of dread that we could be like this for 100 days or more (like lock-down #2). Second, the daily drip feed of data and the endless press conferences only reinforce the sense that we are not being given the full picture. Third, the sense of helplessness that for all our individual sacrifices of the past 18 months, we don’t seem to be any further ahead (if anything, we have gone backwards on so many counts). Fourth, State politicians seem to view this public health scare as a war of attrition between themselves and the voters (and their interstate and Federal counterparts). Gone is any sense that we are all in this together.

Quite apart from the cracks in Federation that the pandemic and its response has exposed, entire sections of the community are being driven apart and/or pitted against one another. Despite the so-called “National Plan” that the Commonwealth, State and Territory governments have all signed-up for, it’s clear that individual Premiers each reserve the right to interpret it differently, and will continue to impose internal border closures if they see fit. So, while Victoria and New South Wales seem aligned on this National Plan, Western Australia and Queensland in particular are more circumspect. Then there is the “race” to vaccinate their respective populations (or, as has been said a few times already, “our State citizens”, rather than “our Commonwealth citizens”).

At what point will the 70% and 80% vaccination levels be achieved to herald the promised social and economic freedoms? Is it the % of total population, or only the adult population, or only the eligible population, or only those between certain ages? Is it going to be calculated Federally, or at the State/Territory and/or LGA level? What about mandatory vaccinations for essential and front line workers, and those that have face-to-face dealings with the public? What about employers who require their staff to be fully vaccinated, but face resistance from unions?

Continued lock-down risks becoming a blunt instrument, and a tool of first (rather than last) resort. As such, it also risks alienating the majority of the population who are doing the right thing, in observing the public health directions and getting vaccinated (like, where’s the benefit?). And a prolonged lock-down risks undermining the efficacy of the vaccine, so we’ll need booster shots before we know it!

It seems that Covid19 is challenging our notions of the social contract between the government and the governed, and even testing the social license to operate we grant to big business (especially monopolies and cozy duopolies). The pandemic is also demonstrating the limits of individual responsibility and accountability, and potentially undermining the duty of care we owe to one another. If I knowingly, recklessly or carelessly (and as a result of breaching public health orders or OH&S measures) infect my family, my neighbour, my colleague or my customer, am I culpable? Does that mean I forfeit certain of my rights, especially if infection leads to death?

Just on the data, another reason the current lock-down seems different is because the information is being presented is not the same. Last year, everything was about the R0 number, flattening the curve, and “double-donut days”. There was also confusion over agreed terminology for “clusters”, “unknown cases”, “hot spots”, “red zones”, “complex cases” and “linked cases”. Politicians and bureaucrats talked about “settings”, “circuit breakers”, and “gold standards” for contact tracing. This year, it’s all about the “number of days infected”, “chains of transmission”, “mystery cases”, as well as the number of tests and vaccinations – much less analysis, it seems, on the number of confirmed cases per 1,000 tests or per 1,000 of the population, recovery rates or deaths as a percentage of cases.

From what I can glean, the stubborn levels of “mystery” cases can only be explained by the following:

  • more asymptomatic cases (are people building natural immunity?);
  • legacy cases shedding (a result of long Covid?);
  • longer incubation (and reporting) periods (less obvious initial symptoms?);
  • novel forms of transmission (or the virus is lingering longer on outdoor surfaces?);
  • QR codes and contact tracing not working (or the data is not usable?);
  • confusion over domestic/social/workplace/health/retail settings (e.g., extended families and multi-generational households?);
  • people being unclear about their movements (for fear of being victimised?).

Finally, I’m also not sure if lessons are being learned from elsewhere. We are still applying 14 day quarantine/isolation periods (albeit now with a day 17 test), yet in Hong Kong, for example, quarantine was extended to 21 days some time ago.

Next week: To be or NFT?

 

Is Federation still working?

As three of the six Australian States (and one of the two Territories) grapple with fresh COVID outbreaks, their respective lock-down measures reveal quite different responses to what should be considered a common problem. It’s not just the differences within their own borders, but also how they react in relation to each other in terms of classifying “hot spots” and imposing travel restrictions. It’s a fresh example that despite defining itself as a single nation, the Commonwealth of Australia remains a patchwork quilt, hurriedly stitched together from the remains of colonialism, under the pretext of “Federation”.

Federation feels even more of an artificial construct than the former British colonies themselves. In my view, the inconsistencies between each State and Territory in dealing with COVID, and their fractious collective and individual relationships with the Commonwealth, can be linked to questions of national identity, the legacy of imperialism, a lack of consensus on a Treaty with our First Nations people, and the failure of Republicanism to pave a way forward.

For a start, Australia tries to maintain four different codes of professional football – yet not every State or Territory is represented in the national competitions. Of these codes, one is essentially a Victorian competition, with a couple of other States brought in on merit, and a couple of the others only included after some fabricated interstate franchises. (And how long before a Victorian club has to relocate to Tasmania?)

Another football code runs an interstate competition, but only two States compete – and sometimes they compete in another State (just for the hell of it, or to try and instill “national” relevance?)

Cricket may rightfully claim to be a national sport at a professional level, but even the major Sheffield Shield competition excludes the two Territories.

These observations may appear flippant, but in a sport-loving nation, such examples might help explain why we don’t feel a very cohesive place – not all of us even get to barrack for our own State or Territory on the playing field!

There are many other examples of arbitrary differences between the States – e.g., unicameral or bicameral Parliaments; recognition of Public Holidays; the calculation of State election dates; the width of railway tracks; connectivity with energy grids; the minimum legal age for driving a car; the size of beer glasses in pubs; and the term for a “corner shop”.

Back in 1901, Federation must have felt like part of a grand scheme towards a modern era, designed to galvanize a bunch of colonies into a cohesive whole, and forge a new nation. But we don’t formally celebrate its existence with a public holiday. Rather, each State prefers to mark the Queen’s Birthday (albeit on different dates…) instead of recognizing the Act of Federation, which was supposed to confirm Australia’s independence from the UK. Not only that, but the “National Day” we do observe is Australia Day, which is highly contentious and increasingly overshadowed by its association with foreign invasion, imperial expansion and colonial oppression.

Back to COVID: recent events have shown that the “social contract” between the Commonwealth of Australia on the one hand, and the States and Territories on the other, is purely transactional. In respect to the pandemic, the Federal government has had two primary responsibilities: 1) international border control and quarantine; 2) vaccine acquisition and distribution. Although they have maintained closed borders, the Commonwealth has “delegated” quarantine arrangements to the States, with all the resulting inconsistencies and glaring mistakes. The Commonwealth has also fudged the vaccination roll-out (too many reasons and causes to go into here).

On the need for dedicated quarantine centres: while the States have taken on (or been lumped with) an unenviable task, after 18 months of the pandemic, I don’t understand why the States haven’t taken it upon themselves to build their own facilities, and then stick the Federal Government with the bill. If landlords won’t undertake essential property repairs when brought to their attention, I think most of us would agree that their tenants would have a valid case for getting the work done themselves and deducting the cost from the rent.

Except that the States don’t have that sort of leverage over the Federal Government (despite what Queensland and Western Australia might say and think).

In short, Federation is merely a way to distribute taxes levied by the Commonwealth – even then, this distribution is mired in political horse-trading and pork-barreling. The States, unable to raise their own revenue (other than via payroll tax, stamp duty, land tax and fees from providing certain services, issuing permits and granting licenses), are heavily reliant on Federal handouts. While this allocation is often dressed up in the guise of achieving minimum targets and standards, in reality funding is tied to political objectives.

I suppose even after 120 years, Federation can still be called a work in progress. Whatever the future debate on Australia Day and an indigenous Treaty (plus constitutional recognition and parliamentary representation), and whatever the prospect of a Republic, we may need to consider that the States, as currently constituted, have had their time and are increasingly redundant. Part of me thinks we might be better off by dissolving them (along with our local authorities) and re-constituting regional government and administration around the lands of the original settlers to this island. Just a thought.

Next week: Startup Vic FinTech Pitch Night

How about that AAA rating?

As the State of Victoria weighs up the costs of yet another lock down, you could be forgiven for thinking that the local economy has taken a further beating after the horrendous events of the past 15 months. Across Australia, thousands of companies and individuals accessed various government-sponsored financial aid packages to keep afloat, causing the federal government to borrow more money, at something like 8x the equivalent rate pre-COVID. National public debt is now expected to grow to more than 40% of GDP by the 2024-25 fiscal year – effectively double what it was in 2018-19.

So what has Australia done to retain its coveted AAA sovereign rating from Standard & Poor’s, and have the rating outlook upgraded from negative to stable? According to the ratings agency, and economists such as Westpac’s Bill Evans, there are probably three or four key factors that have warranted this optimistic economic reckoning.

First, while government borrowing (Quantitative Easing) has blown out as a proportion of GDP, the current low interest rates mean that the cost of servicing that debt is manageable.

Second, while the pursuit of QE has destroyed any hope of returning to an overall budget surplus, the deficit will return to similar levels last seen after the GFC, and the current account will continue to return a modest surplus over the coming quarters.

Third, despite the significant economic risks that were identified at the start of the COVID pandemic, the actual impact on the budget has been less than feared, and the economy is recovering faster than expected (as evidenced by latest employment data and consumer sentiment).

Fourth, Australian banks have seen an increase in customer deposits, meaning they are less reliant on more expensive overseas borrowing for their own funding.

Overall, just as with the GFC, Australia has managed to dodge a bullet (the shock to the system was less than anticipated) – in large part thanks to a resurgence in iron ore prices (again).

But weaknesses and disparities remain:

The over-reliance on commodity prices (mainly based on demand from China) hides the true nature of Australia’s balance of payments – we manufacture less than we used to, and our supply chains have been severely tested during the pandemic. And with international borders closed, we won’t see the same levels of GDP growth that resulted from immigration.

Our household savings rate as a percentage of disposable income has come down from its peak of 22% in July 2020, to less than 12% this past quarter, as people held on to their cash for a rainy day (or 3 months lock-down). The savings rate is expected to come down even further as consumers feel more confident and start spending again.

As with the GFC, home owners have chosen to pay down their mortgage debt – but the picture is more complex. Yes, interest rates remain low (and will likely stay so for at least another 18 months), despite commentary from another economist, Stephen Koukoulas suggesting that the RBA will have to raise rates sooner than expected. With property prices expected to increase 5-10% over the next 12 months, home owners will feel wealthier (but asset rich and cash poor?) as mortgage repayments reduce as a percentage of their home’s value. And while analysts at S&P expect banks’ credit loses to remain low while the economy recovers, the fact that two-thirds of banks’ exposures are to highly leveraged residential property could see increased stress when interest rates rise and if wage growth remains sluggish (more on the latter next week).

Australia’s sovereign credit rating is something of a badge of honour, and represents membership of an exclusive club – fewer than a dozen countries are rated AAA; no wonder it’s a big deal, and partly explains why the Prime Minister gets to attend the G7 (albeit as an observer). Comparatively speaking, Australia is doing very well when it comes to managing COVID (although we could be doing a lot better on a number of measures), and has an economy that continues to be the envy of many. Expect more on that AAA rating (“How good was that?”) as we head into the next Federal election…

Next week: Where is wage growth going to come from?

Rebooting the local economy

Continuing the theme from my previous, post-lockdown blog, there are definitely some growing challenges ahead as the local economy tries to gather momentum. Yes, the jobs recovery looks encouraging for the hoped-for recovery (at least, based on headline numbers); and property prices (that staple of banks and economists alike) are getting very frothy again. But the end of JobKeeper later this month will hurt both employees and employers – it will be especially hard to stomach when you consider that a few household brands have chosen to keep their government-funded windfalls, despite making significant profits even during (or as a result of) the pandemic, while these same public companies have also been paying out shareholder dividends.

It will be very interesting to monitor ABS data on the number of business entries and exits (CABEE), which is now also being reported quarterly, instead of just annually. The latest annual data released in February (for the period ending June 30, 2020) shows that there were more new businesses registered than the number of businesses that were de-registered – but the net gain was a lot lower than in recent years, as can be seen from this graph:

Even after a few months of the pandemic, the number of new entries looks to have declined significantly, with a corresponding rate of increase in exits – and the net increase was already on a steep downward trajectory from 2017-18.

According to the ABS data, “In 2019-20 three industries accounted for more than half of the net annual increase in businesses, these were:

  • Transport, postal and warehousing
  • Professional, scientific and technical services
  • Health care and social assistance”

None of this data should be too surprising; further, we should expect to see a significant number of exits from the retail, hospitality and tourism sectors. Government support in the form of domestic travel vouchers and discounted air tickets will only go so far to reverse the fortunes of airline, hotel and tour operators. (The folks in Queensland must be happy with the twin benefit of being a desirable destination for both domestic holidays and Hollywood film production.)

While on-line shopping has helped to keep retail afloat, bricks and mortar retail has been dealt a heavy blow, from which it will take a long time to recover – many people have no doubt got used to e-commerce, and can’t be enticed back to the shops.

From what I see in Melbourne, the CBD is still running at 40-60% capacity (depending on location, sector, and day of the week). Mondays are definitely quiet, it gets busier on Wednesdays and Thursdays, and then starts to taper off again on Fridays, with people opting to “work from home” as the weekend draws near. Last week, one business group wants companies to close at 4.00pm on Fridays, to encourage workers to hang out in the city after work – but Fridays has always been known as POETS day, so I hardly think anyone still here at the end of the week needs any encouragement to down tools any earlier…

There are still so many construction sites within the CBD, both new build and renovations. But who is going to be occupying this new and refurbished real estate – especially as offices are still limited to 75% capacity, and employees seem reluctant to come back to the office full time? Many shops (old and new) remain boarded up. Some cafes have not even bothered to re-open at all, let alone just on the busy days. Doubtless some current construction projects have been brought forward to take advantage of JobKeeper payments, quieter streets and low interest rates – but it means that in some areas, whole blocks lie empty and virtually devoid of any business, and it feels that many shops don’t see a customer all day.

Unfortunately, with politicians distracted by non-economic matters (plus the small tasks of managing hotel quarantine and rolling out a vaccination programme), we are only seeing short-term responses and band-aid solutions, rather than strategic and visionary policy-making. Neither our governments nor the opposition parties (of all persuasions) seem willing or capable of serious (and non-partisan) debate on things like Universal Basic Income, structural reform of the economy, and instilling innovation across all areas of industry. Instead, they prefer to tinker at the edges (tax, superannuation, industrial relations), engage in Parliamentary point-scoring, and maintain the status quo within their respective supporter base. Something has to change, and soon.

Next week: Victorian Tech Startup Week