“Overall, Victoria’s recovery to date has been remarkable,” Mr Richardson said. “Few at the height of the second wave could have envisaged Victoria would begin 2021 in such a favourable position”.
Victoria shrunk at twice the rate of the next worst state last year, which means its recovery largely reflects the depth of its decline.
Victorian Treasurer Tim Pallas said the early positive results demonstrated the state’s coronavirus strategy was working.
“Jobs will remain front and centre in our recovery plans as we continue to invest in employment support across Victoria, together with our record pipeline of infrastructure projects,” he said.
The bullish report will fuel debate about whether the federal government should be removing major stimulus from the economy this year as the recovery ramps up. Multibillion-dollar support measures for business, such as wage subsidy program JobKeeper, are scheduled to end in March. Business groups are asking for extensions, while economists say more targeted assistance is needed.
The schemes have helped workers avoid a double digit unemployment rate Treasury had previously warned could be reached at the peak of the crisis. About 875,000 jobs were lost at the height of the pandemic but the majority have since been recovered. Deloitte forecasts the jobless rate to reach 6.7 per cent in 2020-2021 before falling back to 6.4 per cent the year after and continuing to fall to 5.1 per cent in 2024-2025.
Treasurer Josh Frydenberg said the $250 billion worth of federal government support had helped underpin the comeback and protected jobs and incomes, while encouraging spending.
“This means that even as JobKeeper and other temporary emergency support measures taper off, a fiscal cliff is avoided, with an additional $200 billion sitting on household and business balance sheets compared to the start of last year,” he said.
“We’re also encouraged by Deloitte’s predictions of a further drop in unemployment to 6.5 per cent in 2021, a long way from Treasury’s initial estimates of a peak of 15 per cent in unemployment without the government’s economic support.”
Despite the improvement there are some problems. The nation’s population is set to be 550,000 fewer next year than it would’ve been without the virus. Immigration will start to improve as the vaccination rolls out but this will drag on Victoria’s economic prospects in particular where it has a major driver of growth including for the critical education sector.
In NSW, Mr Richardson said the state had been “neatly protecting both lives and livelihoods” and has accelerated its infrastructure program, but the lack of migration would also be an issue. Tourist levels are expected to recover to 2019 levels by late-2024 and population growth will continue to lag behind pre-pandemic estimates by 2 per cent or about 750,000 fewer people.
While the national economy has so far been a success story compared to other countries, Mr Richardson said one “disappointment” was the lack of reforms pushed through by different governments. He did, however, acknowledge the NSW government’s reforms, which includes plans to make stamp duty an optional tax, and the federal government’s changes to insolvency laws.
Labor Treasury spokesman Jim Chalmers acknowledged the optimism in the outlook but said wages growth was a major concern for workers. Average earnings are expected to increase 1 per cent in 2021-2022. “The Morrison government should not and cannot declare victory while more than two million Australians are either without a job or don’t have enough hours and wages are stagnant,” he said.
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.