Bushfires have complex impacts on the economy, including effects on forestry. Photo: SA SES
The impact of natural hazards on the economy is complex and often overwhelming. The 2019/20 fires are no different, and the true costs won't be known for years.
By Communications Assistant Radhiya Fanham from the Bushfire and Natural Hazards CRC. This article was first published in Issue Two 2020 of Fire Australia.
Estimating the total economic cost of Australia's natural hazards is not easy. The physical destruction of the recent bushfires that have torn through millions of hectares of the Australian landscape, as well as the impact on human lives, the economy and the environment, is complex. Adding to this complexity is that, as the full effects become known, it is highly likely that the costs of this season will continue to rise for years to come.
Professor of Economics at Deakin Univesity and researcher for the Bushfire and Natural Hazards CRC Mehemet Ulubasoglu described three types of costs related to natural disasters.
"The first type is tangible direct damages, which are basically the market value of the properties or infrastructure damaged, such as houses, cars and crops," he said.
"The second type of cost is tangible indirect losses. These are not direct damages, but they are incurred as a consequence of disasters, such as relief and recovery expenditures that have to be made."
“The third cost type is intangible indirect losses. These effects are not directly measurable but we know that they are there—such as mental health effects, social effects and the value of the forests burnt,” Prof Ulubasoglu explained.
Taking into account all three types of costs in the wake of the 2019/20 bushfire season, current estimates stand at tens of billions of dollars in losses. Professor John Quiggin, Australian Laureate Fellow in Economics at the University of Queensland, estimates a loss of over $100 bn.
The effects of bushfires last for years and they hit some sectors much harder than others. It is this very area that Prof Ulubasoglu has been exploring in his research, undertaken as part of the CRC project Optimising post-disaster recovery interventions in Australia. With a focus on the 2009 Black Saturday bushfires, the analysis undertaken by Prof Ulubasoglu and his team shows that the economic impacts of these fires hit the agricultural sector the hardest.
“Agricultural sector employees received the hardest hit. They lost an average of $11,000 of annual income per individual as a result of the disaster,” Prof Ulubasoglu explained.
“Our research shows that ‘smallness’ in economic terms is a point of vulnerability in the sense that sectors find it difficult to come back to their predisaster income trajectory because they face a big loss compared to their size.”
This means that, in general, low-income earners can lose out, while middle-income or high-income earners are not affected to the same degree—or may even increase their annual income. When it comes to how often a person works, typically the incomes of part-time workers decrease while full-time workers are not affected.
When natural hazards occur, people place negative weight on production, investment and business activities, hence consumer confidence falls, resulting in a broader negative outlook for the economy.
Prof Ulubasoglu says we need to recognise that these different sectors represent different levels of vulnerability and so there is significant room to reconsider the system to make the most out of taxpayers’ money and build a sustainable disaster recovery model.
It has been an incredibly long and difficult fire season all around the country. When asked how Australia can cope with future disasters and the inevitable negative impact on the economy, Prof Ulubasoglu said we need to recognise the scale of the threat.
“Climate change is a real and significant threat,” he said. “There are new dimensions and risks waiting to be identified, documented and quantified so we need to increase our research into these emerging risks.”