Real Cost of the Bushfire Crisis

January 23rd, 2020
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.

;There 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.