Prime Minister Scott Morrison and Victorian Premier Daniel Andrews (Image: AAP/David Crosling)

Victoria will again force a recalibration of the nation’s economic and fiscal numbers as it enters a stricter lockdown, curfew and, from mid-week, the most serious economic shutdown the nation has ever seen.

The initial stages of the Victorian outbreak tipped the Morrison government into extending JobKeeper and its supplement for JobSeeker and other welfare recipients, against the wishes of fiscal fundamentalists on its backbench.

The persistence of massive numbers of cases in Victoria has already rendered the July economic update out of date, as Treasury secretary Steven Kennedy acknowledged last week. This week will be another hammer blow that will not merely force a reappraisal of both the fiscal and economic outlook, but require a much stronger policy response from the government.

Because of its smart design, JobKeeper can scale up with the Victorian crisis. Businesses that will find out today whether they will be forced to close, or dramatically scale back their operations, will continue to be eligible to receive support (albeit with their employees receiving a lower rate after September) with no changes to the parameters or state-specific add-ons.

But the cost will blow out well beyond the $18 billion-odd that the extension was originally costed at, and the restrictions on business operations to be announced today might close a whole new range of “non-essential” services that have hitherto operated relatively unscathed.

It also means many businesses in Victoria will still be shuttered or operating in an emergency environment when the banks’ moratoria on loan repayments comes to an end. That means the economically damaging wave of business closures will be bigger still in the last quarter of the year. Job losses can be made good if firms are there to operate in a reopened economy; once you lose firms, your job creation capacity diminishes.

The Victorian crisis will send further ripples out into the economy, especially into NSW, the biggest economic unit, as it struggles to keep on top of a low-level but persistent spread of infections.

That will affect both companies and consumers. Today, gaming giant Tabcorp revealed more than $1 billion in impairment writedowns on its core business because of the recent and projected future impact of the lockdowns, as well as a sharp fall in trading profit. Seek, the nation’s biggest online jobs marketplace, also revealed it had decided to drop its final dividend and restructure its debt to build up liquidity. Expect a lot more of that.

And if there’s any doubt that Victoria is affecting the mood of consumers, look at the level of cash hoarding going on.

Two weeks ago we reported on the rise in notes on issue and the hoarding of cash that had really started in March, despite the universal switch to contactless payment. But note issue really took off in mid-July: the Reserve Bank figures in its weekly statement of assets and liabilities last week revealed that the value of bank notes on issue has recently surged.

While the first week of July saw a rise of $271 million in notes on issue, in the week ending July 24, there was a $1.267 billion jump in the value of notes of issue; last week there was a rise of $1.383 billion. That meant in July alone notes on issue rose 3.9%, taking the total to $93.708 billion.

That’s the highest ever, and much higher than during the GFC when panic about bank deposits forced the Rudd government to guarantee them. Australians are deeply worried.

The Victorian shutdown will reduce the recovery in the current quarter, though growth should still be positive as the rest of Australia emerges from the lockdowns of March-June. But it does raise the risk of ANZ’s forecast of a double-dip recession being accurate.

While we won’t know until well into the September quarter next year if growth contracts in the coming December and March quarters, it would inflict a savage blow on consumer and business confidence — especially if unemployment remains high.

One of the worst aspects of the early nineties recession was the sense that it would never end; that month after month and quarter after quarter would go by with little improvement, while lives were wrecked and families were forced into poverty.

To counteract that, the government has to recalibrate its estimate of the size and nature of the stimulus needed to drive down unemployment. It must get more money into the hands of people who will spend it — the low-income people who need it most (and who are most at-risk of having to keep working while infectious). And it must get more money into activities that have strong multipliers, like residential construction (social housing), as well as infrastructure projects, large and small.

That is, it now has to embark on the kind of fiscal stimulus programs that the Rudd government turned to in 2009 to support the economy. The $250 billion-plus it has committed as emergency support over the last three months saved the economy from outright collapse. Now it must get it growing again.

The Rudd government spent over $50 billion doing so a decade ago. The Grattan Institute estimated — prior to the Victorian crisis — that another $70-90 billion was needed to support the economy. In the wake of events in Melbourne, at least another $100 billion will be needed to start putting downward pressure on unemployment, assuming Victorians can get on top of their outbreak and the rest of the nation can continue to manage a low level of spread.

This kind of spending continues to be affordable — another $100 billion would push net debt this year to around 40% of GDP. It is also necessary for a nation that has learnt the hard way that COVID-19 is an intractable enemy that requires more than a few months’ effort to defeat.