Back To Work, Australia

We entered this crisis by responding decisively and effectively. Now it’s time to do the same on the way out. by Nick Cater.

It is time for Australia to get back on the job. That is the unambiguous conclusion of a report by Professor Henry Ergas commissioned by the Menzies Research Centre assessing the competing risks to public health and the economy posed by the COVID-19 crisis.

A swift and determined policy response as we entered the COVID-19 crisis has given us the margin of safety required for a swift and determined exit.

It is a luxury which few other nations have been afforded. We cannot afford to squander it.

The report finds that Australia has withstood the COVID-19 pandemic considerably better than most. It ranks among a small of a group of nations that led the world by responding quickly, decisively and proportionately. 

The early declaration of a pandemic ahead of the World Health Organisation followed by the closing of external borders and the imposition of strict quarantine for returning Australians was in marked contrast to the response in other developed nations which are now suffering the consequences.

The acquisition of medical stockpiles of masks and medicines, a three-fold increase in the number of hospital beds and the purchase of additional respirators put our medical services in a strong position to manage an outbreak on a much larger scale.

High rates of testing compared to comparable countries and innovative methods of tracking and tracing, including the COVIDSafe app downloaded by more than six million Australians, allowed us to contain the virus. A comparison with the experience of other developed nations shows the magnitude of the Australia’s achievement. Residents of the UK, for example, were 14 times more likely to test positive (3990 cases per million) than Australians (280 per million). The number of deaths per million in the UK (546 per million) was 136 times larger than in Australia (four per million).

Now that the risks to public health have been substantially reduced, attention must turn to the mounting risks to jobs and businesses. We have earned ourselves room to move. Having worn the cost of avoiding the worst of the pandemic, we now have the opportunity to avoid the worst of a global recession by the swift removal of restrictions to business and social activity.

Allowing businesses to operate with minimal restraint will necessarily involve the gradual easing of COVID-19 controls. Steps can be taken to mitigate the risks, however, for example through better protecting Australians who are most likely to suffer acute symptoms. The increased capability in health care combined with a raised alertness to signs of a fresh outbreak allows us room to absorb risks.

We can be confident that the risks to every Australian are considerably lower than they were two months ago thanks to the measures taken so far. The worst-case scenario presented in March by researchers at Imperial College, London, amplified in this country by alarming reports in the media and an influential Melbourne-based think tank, have proved to be wildly at odds with reality.

In the absence of competing data, Imperial College’s forecasts were widely influential in public policy decisions taken around the world.  It pays, however, to remind ourselves how wildly inaccurate the forecasts proved to be. Imperial’s worst-case scenario for Australia published on March 26 was 194,953 deaths from COVID-19. It forecast that by adopting prolonged and stringent social distancing, the number of deaths could be reduced to 38,520. At the time of publication, Imperial’s best-case scenario was 374 times larger than the actual rate.

The data available in March was limited and the pattern of the possibility that the virus could run rampant in Australia was high. The cost of social distancing and quarantine measures that were then being introduced was difficult to predict, beyond the expectation that it would have significant economic consequences.

Two months later, the success of the measures taken can be seen in the steady decline in active cases that began in early April. While the restrictions on business activity have been stringent, they were not disproportionate to the perceived risks to public health in a period when the total number of cases was doubling every three days.

Decisions taken by the New Zealand government stand up less well to scrutiny. The excessive, Level 4 measures taken in Wellington have caused considerable economic damage that could have been avoided. The public health outcomes are marginally worse than those Australia has accomplished at a lower cost.  At the time of publication, there have been fewer COVID-19 deaths per million in Australia (4) than in New Zealand (4.4). The total number of cases per million in Australia (281) is also below those in New Zealand (301). The case fatality rates are virtually identical. Yet New Zealand is paying a far higher price for containing the virus than Australia.

Differences apart, both countries now have the ability to reopen their economies without unreasonable risk.

Beyond the need for international border controls and quarantine, there is little reason to keep emergency measures in place. The New Zealand experience shows what happens to an economy that suffers extreme shock from misjudged state intervention. The country’s only steel mill remains closed increasing the country’s exposure to uncertain international supply chains. The declaration that magazine publishing was “non-essential” caused Bauer Media to close titles like Woman's Day, New Zealand Women's Weekly and NZ Listener, which has serious consequences for media diversity.

Australian state governments that appear wedded to restrictions like state border closures should take heed. The economic damage that could result from overabundant caution could take a generation or more to heal.

We acknowledge the reduced appetite for risk in the community given the alarming spread of the virus in some nations and the stress it has imposed on health systems, healthcare professionals, nursing homes and others at the frontline.

However, given the imperative of keeping the economic, personal and community costs of social distancing to a minimum, a rational assessment of competing risks is essential. As this report has found, the marginal case of saving individuals from becoming infected rises steeply as the number of active infections declines. The last case of avoided infection will be the most expensive.

We endorse the report’s recommendations for a swift return to normal business activity. This applies equally to the business of government which should now be conducted through normal processes. The use of ministerial directives and the bypassing of parliament that may be an asset in a crisis quickly becomes a liability once circumstance improve.

Any remaining restrictions must either be withdrawn or codified in existing law, like workplace health and safety legislation, with full parliamentary scrutiny where appropriate.

Now is time for Australia to get back on the job.

Background to this report

The alarming forecasts of widespread pandemic in late March, together with imprudent demands for the government to shut down all “non-essential” business activity, prompted the Menzies Research Centre to commission Professor Henry Ergas AO and his team to establish a clear picture of the health risks and the economic consequences of a lock-down.

Their work was conducted in tandem with a team of economists and policy analysts commissioned by the Business Council of Australia to examine the economic consequences of a lock-down.

They were tasked with gathering the datasets that were just beginning to emerge from Europe and some Asian countries to construct an accurate picture of the threats to health and the economy.

It was apparent at an early stage that the experience was quite different from country to country. The direct application of Italian data to Australia, for example, would be likely to give a highly inflated impression of the effect of the virus.

Further complicating matters was the rapidly changing situation on the ground. In attempting to firm our assessments it was like shooting at a moving target.

There were similar uncertainties in modelling the economic side of the equation. The complexities of a modern, globalised supply chain with its web of supply chains and inter-dependencies makes it almost impossible to map.

There was confidence enough to conclude, however, that the depth of the inevitable economy downturn and the speed with which the economy recovered was highly dependent on the type of measures taken to control the virus. A hard, New Zealand-style lock-down would lead to deep and prolonged recession. A more measured response would increase the chances that the economy would bounce back, particularly if there was temporary support for businesses and workers in the interim.

The developing picture we were establishing was shared in real time with those responsible for policy decisions. However, given the uncertain situation in which the nation found itself, we decided not publish findings that lacked the degree of certainty we normally require.

It was unfortunate that other research organisations did not observe this discipline, choosing instead to seek headlines with forecasts that have since proved to be wildly inaccurate. The effect was to increase public alarm and invite a disproportionate public policy response.

Fortunately, the speed of a pandemic crisis means that erroneous assumptions, worst-case forecasts and unreliable modelling is quickly refuted as empirical data emerges.

The lesson from this extraordinary chapter in public policy making is that while modelling can inform, it should never be allowed to instruct. We must immunise ourselves against costly policy mistakes by adopting caution and scepticism towards unsupported data.