Woeful bushfires disrupt Nation’s economy

March 18, 2020
Editor(s): Nigel Pereira
Writer(s): Thomas Sinclair, Nic Morris, Charlie Francis, Ashlee Stojanovski

The sheer scope of the 2019/2020 bushfires that engulfed much of Australia cannot be understated. The almost unprecedented scale at which the fires laid bare over 18 million hectares of Australian landscape was a source of deep sadness for Australians and foreigners alike. A great deal of aid was made available to help those affected. However, as media and public interest begins to wane, there are still communities that are in acute financial and economic danger.

The reality of these bushfires for regional Australia means a prolonged draining of small business revenues, heightened by rising unemployment. Rural areas are feeling more profound economic and social impacts in an already competitive and globalised agricultural sector. Assistance is rolling out however to revive these local communities from this disaster.

Black Summer local stimulus for regional communities

The federal government acted in the early days of 2020 for an already months-long fire season[i]. A National Bushfire Recovery Agency was established in early January with a planned injection of two billion dollars[ii] to help the “families, farmers and business owners” recover from the grave summer.

Overall, Australian spending focused on two main disruptions for local communities:

1) Demand-side disruption, where individuals will be spending less at local firms 

2) Supply-side disruption, where businesses have lost their assets and access to workers used for production

Small businesses have been a frontier for government assistance with:

  • Up to $500,000 available for businesses to loan from the government for equipment, with no repayments or interest for 2 years, with a low rate to be paid thereafter[iii]
  • Up to $75,000 available for damage clearing (of crops, sheds, and other farm assets)
  • Up to $50,000 available for replacing products, and other $10,000 grants free to spend on regular expenses (wages, utilities) to help small businesses stay afloat

Small firms have been the target audience to the government’s response. At the height of the fires, businesses restructuring for their survival was not uncommon, and so the protection of local business and industry became a priority. However, the government also gave payments to individuals personally affected. 

Individuals and families are also receiving stimulus, namely:

  • $1,000 per adult and up to $800 per dependent under 16 will be given once-off for serious injury, or for damaged personal assets because of the bushfires
  • Up to $605 weekly per adult (based on the average wage per ABS), for up to 13 weeks in the form of Disaster Recovery Allowance[iv]

These broad fiscal injections aim to help keep local people employed and spending in these regions. This is notable, given that in January the unemployment rate ticked up to 5.3%, as well as underemployment up to 8.6%[v].

Source: ABC News

Realities of unemployment were felt even harder in these bushfire-affected communities; in an economy where wages have been mostly flat[vi], for families who might not have had the insurance to cover their recently burnt-down homes, it could mean long-term unemployment and even homelessness for many.  

In addition, the announced stimulus might have helped more, if it weren’t for the many disruptions and delays that have happened. For some, like the Churchman family in Buchan, waiting times have been longer than 6 weeks for government relief[vii]. The family now must rebuild their wildflower nursery – only recently fully realised after 5 years, but wiped out in mere minutes. 

Effects on Agricultural

Although the damage of the recent bushfire season has begun to wane, there are long term economic and communal ramifications for regional Australia. Landscape destruction to communities already battling with hyper-competitive global agriculture prices have caused serious hardship, reflected in the decrease in wellbeing in these regions.

Additionally, mental health problems have become more prominent within our country, with regional communities feeling increasingly isolated as Covid-19 concerns become the Australian media’s focal issue. To add to the widespread uncertainty, the National Bushfire Recovery Agency has stated that it cannot guarantee that funds raised will not be used for global crisis[viii].

Australian farmers and rural communities have seen an enormous hit in agricultural productivity after the bushfire season. One must consider what short-term and long-term policies have been implemented, both on state-wide and federal levels, to ensure that these communities, vital to the security of Australia, are sustainable breadbaskets.

Currently, agriculture contributes 12% to Australian GDP[ix].  The sector has seen stable growth in productivity over the last fifty years responding positively to previous short-term shocks such as the 2002-2003 and 1994 – 1995 droughts[x]. This growth in the sector has been categorised by a mass increase in exports to Asian markets. Clearly, although the sector is frequently subjected to environmental volatility, foreign consumers see some stability and risk aversion in the purchase of Australian agricultural produce.

The small business aspect of Australian agriculture has ostensibly been left behind. Mass consolidation and cooperative agreements have led to an increase in share of livestock, land, income and output value for farms with receipts greater than 1 million dollars[xi]. Indeed, the traditional ideal of the sustainable and small family farming profession is quickly becoming a fantasy. Declining terms of trade mean that profit margins have shrunk  – this negative correlation will have a disadvantageous and sustained impact on those who simply cannot compete and scale activity effectively.

The impact of the recent bushfire season is clear. It may have been the final nail in the coffin for the small business industry within agriculture. Regional communities have been forced to consider a way out of the rut facing them. For small towns, the immediate loss of life, livelihood and housing has given way to sustained depression and despair – a man from Corryong taking his own life is one tragic example[xii].

This bushfire season, being New South Wales’ worst bushfire season recorded[xiii], has caused immediate nation-wide supply and demand shocks and will have long-term ramifications too. While large businesses can hedge against short-term loss, for small communities and those that rely on agriculture the impact is and will continue to be devastating.

Impact on tourism 

Tourism ranks as Australia’s fourth largest export. According to Tourism Research Australia, over 46% of tourism expenditure in Australia are in regional areas[xiv]). For every tourism dollar, 44 cents are spent in regional areas (2017-2018). This makes tourism of considerable importance to many of Australia’s regional communities. 

Tourism in local small town communities have been hit hard. For example, Blue Mountains attraction Scenic World had 50,000 fewer visitors in December, down 50% from last year[xv]. Similarly, Portside Boat Hire, a small business located in Lakes Entrance VIC, saw annual income halved during the busiest time of year – Christmas and Australia day[xvi]. 

Whilst these are only two isolated examples, they represent a broader narrative around Australia’s regional areas, as many small businesses rely on seasonal tourism to stay alive.  The recovery of tourism for local communities will be a critical component of bushfire relief. However, with rising public health concerns over COVID-19, this will likely exacerbate already vulnerable regional communities. 

[i] ABC News. 2020. High Bushfire Threat Already Hitting Parts of Northern Australia as Hot, Dry Trend Continues. https://www.abc.net.au/news/2019-06-27/bushfire-outlook-queensland-2019/11251150>.

[ii] Prime Minister of Australia. 2020. Media Release: National Bushfire Recovery Agency, https://www.pm.gov.au/media/national-bushfire-recovery-agency

[iii] Bushfire Recovery, 2020. Small Business, https://www.bushfirerecovery.gov.au/small-business

[iv] Services Australia, 2020. Victorian Bushfires Disaster Recovery Allowance, December 2019, https://www.servicesaustralia.gov.au/individuals/services/centrelink/victorian-bushfires-december-2019-disaster-recovery-allowance

[v] ABS, 2020. Labour Force, Australia, Jan 2020. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0?opendocument&ref=HPKI

[vi] ABS, Wage Price Index, Australia, Dec 2019. https://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0

[vii] ABC News. 2020. Fire recovery payments barely trickling through as Victoria’s fire-affected communities try to rebuild their lives, https://www.abc.net.au/news/2020-02-17/fire-victims-struggling-to-access-recovery-payments/11969928

[viii]Alexander, H., Chung, L., Chrysanthos, N., Drevikovsky, J., & Brickwood, J. (2020). NSW fires: ‘Extraordinary’ 2019 ends with deadliest day of the worst fire season. The Sydney Morning Herald. Retrieved 16 March 2020, from https://www.smh.com.au/national/nsw/extraordinary-2019-ends-with-deadliest-day-of-the-worst-fire-season-20191231-p53nw0.html.

[ix]Economic contribution of regional, rural and remote Australia. ruralhealth.org.au. (2020). Retrieved 16 March 2020, from https://www.ruralhealth.org.au/book/economic-contribution-regional-rural-and-remote-australia.

[x]Jackson, T., Zammit, K., & Hatfield-Dodds, S. (2018). Snapshot of Australian Agriculture (pp. 3-6). Australian Bureau of Agricultural and Resource Economics and Sciences.

[xi]Productivity Commission. (2005). Trends in Australian agriculture (p. XXI).

[xii]Remeikis, A. (2020). Money set aside for bushfire recovery may be used for coronavirus response. The Guardian. Retrieved 16 March 2020, from https://www.theguardian.com/australia-news/2020/mar/11/money-set-aside-for-bushfire-recovery-may-be-used-for-coronavirus-response.

[xiii]Webb, C. (2020). ‘She couldn’t stop crying’: Town in shock as bushfire trauma sinks in. The Age. Retrieved 16 March 2020, from https://www.theage.com.au/national/victoria/she-couldn-t-stop-crying-town-in-shock-as-bushfire-trauma-sinks-in-20200310-p548ol.html.

[xiv] Tourism Research Australia, AusTrade, 2018. TOURISM BUSINESSES IN AUSTRALIA. AusTrade.

[xv] Petrinic, I., 2020. ‘We Are Open For Business’. [online] Dailytelegraph.com.au. Available at: <https://www.dailytelegraph.com.au/newslocal/thebluemountainsnews/nsw-bushfires-blue-mountains-businesses-scenic-world-and-fairmont-resort-struggling-after-fires/news-story/842d5fec6e7402247406c69f5d98c848> [Accessed 16 March 2020].

[xvi] HORE, M. and CAVANGAGH, R., 2020. What You Can Do To Help Struggling Bushfire-Hit Towns. [online] Heraldsun.com.au. Available at: <https://www.heraldsun.com.au/news/victoria/tourism-towns-call-on-tourists-to-help-rebuild-communities/news-story/1476d62664eb1ceb7b7f1c5153e142ac> [Accessed 16 March 2020].

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Nigel Pereira
Thomas Sinclair
Nic Morris

I'm a third-year Commerce student studying Economics and Finance. I am interested in the intersection between international politics and macroeconomic policy, and societal ramifications of such intersections. I plan to study a Masters of Engineering next year.

Charlie Francis

Charlie is a Bachelor of Commerce student majoring in Economics and Finance. He is interested in macroeconomics, politics and current affairs.

Ashlee Stojanovski