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Covid-19 is a new disease caused by a new strain of coronavirus that has proven to be a life-threatening worldwide pandemic causing millions of infections and hundreds of thousands of deaths. When concerns were raised by the World Health Organisation (WHO) of the alarming spread and severity of the disease it was then declared that Covid-19 was a global pandemic on March 11, 2020. The pandemic has affected the world in all ways possible and has most definitely affected Australia’s economic sectors that keep the economy in proportion which include the household, business/firm, financial, government, and overseas sectors. The 5-sector model is how the economy functions, how it should theoretically run, and how all the sectors link/rely on each other to have a financially stable economy. Each sector has been negatively impacted by the domino-like effect which has caused our economy to severely suffer and break the equilibrium between the sectors.
The household sector is the most essential element of the circular flow model that ties the Australian economy as the consumers hold economic resources such as labor, capital, land, and entrepreneurship. This sector sustains the circular flow movement through consumers who are responsible for the consumption and expenditure of goods and services purchased through the income of either wages, rent, interest, or profit. However, the impact of Covid-19 has affected consumer incomes due to the fact that the household sector and business sector are interdependent on each other. The reason being consumers are in lockdown, so they will not be purchasing goods or services from businesses meaning that they are not gaining profit. Even more so, the effects of this imbalance of the interdependency between these 2 sectors will most likely impact the other sectors and affect the overall flow of movement that the household sector establishes. According to the Life during Covid-19 survey that was conducted in order to see how families are coping with this pandemic, it was evident that 25% of participants reported a small or large decrease in their income and that 10% of participants said they’d been stood down or lost their job during COVID-19. Referring to the statistics, many consumers would be affected by this especially during this crisis as they would have to manage their finances more effectively and cautiously by limiting their expenditure to essentials which ultimately dissatisfies consumer needs and wants. Therefore, the household sector clearly is a key component of the circular flow model as distinctly stated through how it has been impacted by Covid-19 and the Australian economy as a whole.
The business/firms sector is the business and corporate organizations collectively in the Australian economy which produces and sell goods and services to consumers in both the household and overseas sectors. The interdependency of the business and household sectors is re-established as businesses are dependent on consumers spending on their goods and services which effectively becomes the business’ flow of income. Although, the impact of Covid-19 has considerably affected this flow of income as consumers are only purchasing goods/services when absolutely needed. This has also taken a toll on Australia’s small, local businesses as there is a lack of service, reductions in demand, and employee health concerns. Being Covid-19 safe comes has also become a detrimental factor of expenses to small businesses with some paying thousands of dollars to continue operating under obligatory NSW Health measures even as profit and demand shrink. In particular, in Fairfield, the Barone Pharmacy owner David Yassa says he has spent more than $5,000 on warning stickers, sanitizer, and new signage to continue operating during the coronavirus outbreak. This excludes the cost of sneeze guards, a security guard to monitor individuals’ temperatures, and social distancing which additionally cost approximately $3500 a week. Furthermore, more than one million Australians are now out of work and hours worked also fell a record 9.8 percent. The Reserve Bank of Australia (RBA) is expecting the unemployment rate to peak at 10 percent and more than 400 000 more jobs will be lost by Christmas. Moreover, the business/firm sector has been severely impacted by Covid-19 through its relationship with the household sector whereby consumers’ decreased spending on goods and services has also decreased business revenue.
The financial sector refers to the firms and institutions which provide financial services for the household sector (consumers) and the business/firms sector. More specifically, the banks being a financial institution enables consumer and businesses to both save, borrow and invest. Covid-19 has caused a global financial crisis which has heavily impacted the financial sector and continues to unfold in the Australian economy. The interest rate has dropped to a record low of 0.25 percent which has caused Australia to enter its first recession in 28 years since the Great Depression as the pandemic has crushed the economy. Households and businesses are now saving rather than spending, meaning more household deposits into savings accounts are being made. Although, banks are struggling to offer moderate savings rates to offer returns due to government incentives. According to the Financial Review, retail deposits are up 8 percent since Australia’s first lockdown began, accumulating 100 billion dollars worth of deposits. This is a result of loan payment deferrals and stimulus packages, and Job keeper and Jobseeker, provided by the government. On the contrary, before the unprecedented Covid-19 the Australian economy was already weak as said by Treasurer Martin Parkinson ‘Going into COVID, we’d had very weak productivity growth, very weak income growth, economic growth was quite anemic.’ Subsequently, the financial sector, particularly referring to banks, has been affected by Covid-19 which has greatly contributed to the recession that the Australian economy is now in.
The government sector includes the local, state, and federal governments in Australia which have roles and responsibilities to provide services for individuals in the various sectors of the economy through public funds. The Federal government is responsible for national affairs including defense and foreign affairs which affect all Australians and the state governments (including 6 governments that govern each state) are responsible for issues that affect individuals in the state or territory including public transport, schools, hospitals, etc. Furthermore, the local governments/councils are responsible for issues that affect local communities such as building regulations, public health, local roads, etc. All three levels of government collect money from individuals in the household and business sectors through tax to pay for services and infrastructure for Australians. However, being in the midst of a global pandemic, Treasurer Josh Frydenberg has mentioned that personal income tax cuts worth $20 billion could be implemented to boost the economy by putting more money into circulation. This as a result, reduces the amount of tax money flowing to the government which limits the financial support that they have been providing through Job Keeper, Job Seeker payments, and coronavirus supplements in stimulus packages. These stimulus packages have totaled to about $200 billion dollars as of March 23, 2020, which increases Australia’s budget deficit and money owed to other countries. Hence, the government sector including all three levels has been impacted by Covid-19 as individuals are not paying as much tax whereby the money received could be utilized for stimulus packages to assist the circulation of money in the Australian economy.
The overseas sector is concerned with the transactions with overseas countries including imports and exports. Exports of goods and services are an example of an injection into the Australian economy that boosts national income from the income received as it returns to our own economy. Imports of goods and services are an example of leakage as it decreases national income and the money does not continue to circulate in the Australian economy as a result of consumers purchasing goods and services from other countries. In particular, China Australia’s biggest export market, is in a trade war with Australia due to the fact that Prime Minister Scott Morrison is persistent on an independent investigation into the spread and origin of the virus. This has sparked threats from China to cut off billions of dollars worth of imports from Australia including $63 billion of worth iron ore and has suspended meat exports from four Australian abattoirs. Australian beef accounts for 30 percent of exports to China worth $2.67 billion dollars. The tensions between Australia and China would cause the Australian economy to suffer severely if China were to essentially suspend imports altogether and figures already show that Australia’s goods exports have fallen by more than 26 percent as of August 2020. This figure recorded by the Customs General Administration in Beijing showed that Australia was down by more than other countries. Thus, the overseas sector has been impacted by Covid-19 as the Australian PM is persistent in investigating the origins of the virus in China which created tensions in trade deals regarding imports and exports.
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