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[HSC] Economist: 4 October

A summary of this week's economics news; border re-opening!

Durga Collure

Durga Collure

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This past week, the Prime Minister revealed plans to open the international border for states that have 80% of their eligible population fully vaccinated against COVID-19, which he expects will be achieved month. This is economically significant as it means that the tourism sector and the education sector will start to see international customers gradually return and provide a much-needed boost to demand. This week’s article will consider the impact of this decision on the Australian economy.

1. International Borders to Re-open in November

The closure of the international border implemented according to the advice of health authorities had undoubtedly had a major impact on Australia’s education and tourism sector. During the 2019-2020 financial year, the tourism industry made up 2.5% of Australia’s GDP in 2019, consisting of $50.4 billion.
However, following the border closures, this has declined significantly with a 98% decrease in total expenditure by international travellers within Australia between 2020-2021, only contributing $0.79 billion in 2021 compared to $41.5 billion during the previous year.  In addition to this, the sector made up 5% of the workforce pre-COVID, however, in 2020, it was recorded that those employed in the tourism sector fell by 18% compared to the year before, and even this figure was inflated by government subsidies from the JobKeeper package, which was concluded in March this year. ‍
The education industry has also been very much impacted by the border closures prompted by the pandemic, as fees paid by international students accounted for 26% of tertiary education provider’s revenue in 2018, as well as international education being Australia’s largest service-based export, generally contributing more than $35 billion dollars a year to the Australian economy. However, this figure has dropped below $32 billion, not only due to lower direct revenue, but also due to reduced levels of consumption by international students. The ABS notes that for every $1 lost in revenue from an international student, $1.15 is also lost from that student’s spending elsewhere within the Australian economy. Furthermore, the ABS has recorded that 40,000 jobs have been lost in the tertiary education sector between May 2020 and May 2021, meaning that the industry has lost one fifth of its total workforce.

‍2. How Will This Impact The Economy?

When the borders do re-open, aggregate demand in particular will be able to increase substantially, especially in terms of consumption and exports (AD = C + I + G + (X - M)), due to the high levels of consumption generally associated with tourism and international students studying here. This will help boost growth, but also unemployment and underemployment. Due to labour being a derived demand, more demand for Australia’s education and tourism services will naturally result in more jobs created within these industries.

However, it should be noted that only the international border will be lifted, with New South Wales being signalled as the first state to allow for international travel. This means that other state governments may not lift their borders, with the Prime Minister noting that “States and territories will begin this program at different times”. This is reinforced by WA Premier, Mark McGowan indicating that WA will not reopen its international border until 2022. Thus, the benefits of the opening of international borders may be concentrated to a limited number of states, and thus the overall economic benefits associated will be subdued in the short term.

Despite this, both firms within the education and tourism sectors show optimism for the reopening of borders. Universities Australia highlights that, “It also sets Australia on a path to reverse the declines in international education that have seen the annual contribution to Australia’s bottom-line fall from $40 billion pre-COVID to less than $32 billion”, promoting the notion that that NSW’s piloting of the program will help encourage other states to adopt a similar stance.

In addition to this, the news may also increase investment (also a component of aggregate demand) by these two sectors in preparation for international visitors. Executive manager for NSW Tourism Industry Council , Greg Biskin notes that, “Sydney and regional NSW destinations can prepare now for the pent-up demand created by the travel restrictions and border closures”.

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