The current bushfire crisis in Australia
has had a profound effect on people across the country. Human lives have been
lost, animal populations have been decimated, and properties have been destroyed
along with livelihoods. Twenty-seven people died in the fires, and authorities
believe more than 2000 homes have been lost. The overall economic cost of the
crisis is only just starting to be understood, as communities, governments, and
insurance companies start to measure the damage and add up the bills.
Make no mistake, the 2019/2020 bushfire
season in Australia has been like no other. While more lives have been lost and
greater property damage has been seen in the past, the sheer size and scope of
this year's crisis is "unprecedented" according to multiple fire
chiefs and expert commentators. To put things into perspective, the horrendous
Black Saturday fires that killed 173 people burnt 430,000 hectares, while the
current fires have burnt 10.7 million hectares.
Along with the acute human impact of this
crisis, which can't be measured by any yardstick, the economic flow-on effects
are also devastating. While some of the costs won't be known for months or even
years, national economic growth forecasts have already taken a hit. According
to Westpac, Australia will face $5 billion in direct losses, with GDP likely to
be 0.2% to 0.5% lower: "That would put the cost in terms of insured and
uninsured losses at around $5b... Activity in the most severely affected areas
accounts for around one per cent of the Australian economy and is focused on
agriculture and tourism."
There has already been over 10,000
insurance claims lodged as a direct consequence of the fires, with an insured
value fast approaching $1b. This number is expected to rise over coming weeks,
with the direct economic cost of similar disaster events normally about double
the insured loss cost according to Westpac. In addition, the government has
promised to put at least $2 billion into a National Bushfire Recovery Fund.
This figure is roughly the size of the first estimate calculated by Terry
Rawnsley of SGS Economics and Planning.
While the direct fire threat has eased with
the rain in many areas, it's still early days when it comes to measuring the
economic costs: "Assessing the economic impact of disasters is always very
difficult, particularly when the full extent of the damage is still
unknown," cautioned Westpac. For example, current measures don’t include
the effect of injuries and shortened lives due to smoke-related diseases, nor
do they measure the economic cost of damage to species and habitats, loss of
livestock, loss of grain and feed, loss of crops and orchards, or loss of
national and local parks.
are many additional factors to take into consideration, from the direct and
indirect losses faced by farming and tourism communities through to less
tangible costs associated with mental health, unemployment, substance abuse,
and domestic violence. By using the Black Saturday fires as a measuring stick,
the tangible economic impact of the current bushfire season could be as high as
$100 billion. This aligns with the estimate made by University of Queensland
economist John Quiggin, which more than doubles to $230 billion when we factor
in the Deloitte Access Economics ratio of intangible to tangible costs.