Of course, economists have long stressed the benefits of open borders and the “gains from trade”. The free exchange of goods and services across national boundaries have driven higher living standards as countries have pursued their “comparative advantage” – doing what they’re relatively best at, simply put.
In the COVID age, this free exchange of goods remains under way. Hulking vessels, laden with shipping containers, continue to sail the high seas.
It is the services part of the trade equation that has been dealt a body blow by COVID-19, because the sale of services generally – but not always – involves a face-to-face performance.
Education was Australia’s third-largest export before COVID-19. Who knows what it will be now. Pilot programs to appropriately quarantine incoming students offer hope. But at a time of global recession, the outlook is clouded.
Most obviously, our tourism service exports have been crippled. That was particularly the case when domestic travel was restricted. But, now that Melbourne is slowly reopening and wider state border reopenings are on the cards, our tourism story is about to take a turn decidedly for the better.
How can that be while international borders remain shut?
Well, it’s a strange matter of fact that Australians spend more dollars each year holidaying abroad than the entire world spends coming here. Incoming international visitors to Australia spent $39.1 billion here in 2018-19, according to Tourism Research Australia, a division of AusTrade. In trade lingo, we exported $39.1 billion of tourism services to these foreigners, even though they were consumed onshore.
On the other side of the ledger, Australian residents travelling overseas spent $58.3 billion on foreign tourism. Again, in the lingo, we say that Australians “imported” almost $60 billion in tourism services from foreigners. Even though we spent the money overseas, it shows up as an import.
All up, before COVID-19, Australia was running a significant trade deficit in tourism services. Which makes sense, when you think about it. Australia is a nation of relatively rich people who love to travel.
So, what happens when you stop us doing that? Well, it remains to be seen. But if Aussies diverted every dollar they would usually spend overseas to domestic travel, it would be a sizeable boost to our struggling tourism sector. It’s just one of the strange economic silver linings from COVID-19.
Of course, not everyone can afford to suddenly start taking lavish domestic holidays, particularly not those affected by job losses. But for the rest of us, COVID-19 has had another remarkable impact – of actually increasing our combined savings buffer to half-century highs.
Mortgage offset accounts have swollen 10 per cent since March, thanks to reduced opportunities to spend, along with historic boosts to government payments. Meanwhile, record amounts have been shaved off our national credit card debt, thanks also to early release of super. The amount of credit card debt on issue attracting interest charges has fallen to a 15-year low.
Highlighting these figures in a speech earlier this month, Reserve Bank governor Phil Lowe warned that our willingness to spend this new savings buffer will be one of the most important factors determining the pace of our economic recovery.
“What are people going to do with this extra saving and improved debt situation?” Lowe asked, before concluding: “The better outcome for the economy is for households and businesses to keep spending and investing.”
Key to this, says Lowe, will be the ability of governments to keep public confidence high in both their job prospects and the ability of our health system to cope with inevitable renewed COVID-19 outbreaks.
For policymakers, the path forward is clear, says Lowe: “There are large payoffs to be had from ensuring public confidence in the capacity of the health system to respond. From this perspective alone, there are likely to be large returns from public investments in first-class testing, contact tracing and quarantine arrangements. These are essential, not only to open up our economy successfully but to also build the confidence that is required for people to spend and invest.”
For the rest of Australians, too, the message is clear. A century ago, our grandparents were called to war. In 2020, we were called to serve the nation by staying at home on the couch. In 2021 – if not sooner – we will be called into action again: to go on holiday.
Good thing we’re all stuck in one of the most pristine and remarkably diverse landscapes in the world. Given a choice of crisis responses to be part of, I know which I’d prefer.
Don’t forget to pack the marshmallows.
Jessica Irvine is a senior economics writer with The Sydney Morning Herald.