Already this summer’s devastating fires have cost 29 lives, almost 3,000 homes and around one billion animals. That’s before we get to all the other personal, social, environmental and economic costs including the psychological and physical harm, damage to infrastructure and other assets, disruption to essential services and effects on regional and national economies.
Some of these costs are direct, others indirect, and they’re notoriously difficult to quantify properly. Many aren’t captured by gross domestic product alone. GDP reflects the total value of goods and services produced in a given period. It doesn’t measure the destruction of wealth and wellbeing from disasters, only the loss of income, production or spending that flows from them.
Natural disasters typically see a temporary reduction in economic activity, especially but not only in directly affected communities. But then they often contribute to economic growth measured by GDP because of the assistance that flows and the rebuilding and replacement activity that follows. We saw this in the aftermath of Cyclone Yasi and the Queensland floods in 2011.
The economic impact of this season’s fires will be felt for some time. There has already been a substantial hit to wealth, and in the short term we can expect to see even lower economic growth, which was already weak. Economists expect these fires to reduce annual GDP by 0.1 to 0.5 per cent, concentrated in the December and March quarters.
This hit to growth should largely reflect lost production and consumption from the initial supply shock of the disasters, which has hurt businesses, damaged infrastructure and will cause some delay in planned spending and investment.
Such repercussions will be most heavily felt in directly affected communities and local industries, particularly in the context of tourism and agriculture. This includes a big drop in bookings, effects on retail, hospitality and services, and disruption in the production of dairy goods, meat, some fruit and vegetables, wine and honey – to name just a few.
Consumption and confidence will also be hit in directly affected areas, and potentially in the cities, suburbs and regions that have been coping with smoke haze. Consumer confidence was already well below average before the fires, but fell a further 1.8 per cent in January.
Over coming months and years, the rebuilding efforts will likely provide some modest support to economic growth, particularly through the reconstruction of housing and infrastructure, but also through the replacement of home contents and vehicles. Much of the assistance and recovery efforts will be focused on directly offsetting losses from the disaster, rather than a traditional stimulus that tends to create new sources of activity.
Over the long term, Australians are expected to pay a very high price for more frequent and severe natural disasters, particularly if climate change is not mitigated. As Reserve Bank deputy governor Guy Debelle noted last year, more frequent weather events would mean that “the supply shock is no longer temporary but close to permanent”. Deloitte Access Economics predicts the total economic cost of natural disasters is expected to reach $39 billion a year in 2050, about double the average annual cost in the 10 years to 2016.
The cost to the Commonwealth budget is a bit easier to quantify but it’s far too early to tell – fire season isn’t over and we won’t know the final cost for some years. It will be significant; the Queensland floods and Cyclone Yasi cost the Commonwealth $5.6 billion over six years.
When it comes to the budget, the priority needs to be supporting fire-affected communities, families, businesses and the emergency services. It is too early to know the exact effect this important, urgent and critical support will have on the $5 billion surplus the government committed to five weeks ago.
What we do know is that more frequent and severe natural disasters related to climate change will have a significant effect on the budget in the long term. Moody’s has warned that this will likely see “rising and recurring costs that will test the government’s capacity to mitigate these costs”.
Taken together, these are the economic and budget costs of inaction, of a government in its seventh year which still hasn’t come up with a plan for the economy or for credibly reducing our emissions.
Scott Morrison’s do-nothing approach to bushfires and climate change has already inflicted very real costs on the economy and on Australians. His scrambling, reactive and ad hoc responses and his failure to listen to experts or exercise effective, empathetic leadership have cost communities and our national economy at a time when Australia can least afford inaction and ineptitude.
Before the fires hit, Morrison and Josh Frydenberg had already overseen economic growth that was well below average and well below forecasts. Growth slowed in the September quarter, has slowed since the election and has almost halved since Frydenberg became Treasurer. And this week we heard Deloitte Access Economics warn Australian workers and families not to expect the economy to get much better.
We do not meet the challenges posed by these fires from a position of economic strength. And it will be costlier still if the lessons are ignored.
This opinion piece was originally published in the Australian Financial Review on Thursday, 23 January 2020.