The economics of a botched vaccine rollout

Some 50-60% of Australians are in some form of lockdown right now. The sad reality is that these lockdowns were completely avoidable and the main reason we’re in this mess is the unfathomable incompetence of a handful of individuals. Politicians will point the finger at rule breakers or blame the “unprecedented” contagiousness of the delta variant. But at the end of the day, we all know deep down that lockdowns would not have been necessary if our politicians had bothered to do what they were paid to do and just. ordered. the. damn. vaccines. Who would’ve guessed that 2021, the year of vaccines, would have been tougher than 2020, the year of uncertainty. Here’s a breakdown of the economics of Australia’s botched vaccine rollout.

Crunching the numbers on vaccine costs

According to figures published in The Washington Post, here is how much each dose of some of the most widely-used covid-19 vaccines cost. I’ve also used this data to break down how much it would have cost to fully-vaccinate 20m Australians (I’m using rough numbers to exclude children – although I appreciate health advice is slowly changing in relation to them).

VaccineCost per doseCost to fully-vaccinate 20m Australians
Pfizer/BioNTechUS$19.50US$780m
ModernaUS$15US$600m
J&J (1 dose vaccine)US$10US$200m
AstraZeneca/OxfordUS$4US$160m
How much does it cost to vaccinate a country?

Now, I’m not naïve. I know the below isn’t a perfect science and that there’s a great deal of complexity around the logistics and ancillary costs associated with inoculating a country. I appreciate it’s possible and even likely that our small island nation would’ve been charged a premium for each dose. I appreciate that there are shipment costs, batch testing costs, storage costs, distribution costs, forex fees, lawyers, negotiators, procurement experts, financial advisers, health advisers etc. But alas, unless the federal government is willing to disclose their total costs and do the math for us, I can only work with information that’s publicly-available.

Australia needed 40m doses of any two-dose vaccine, or 20m doses of a any single-dose vaccine to inoculate the eligible population. Something important to keep in mind is that at the time the vaccine deals were being negotiated, we didn’t yet have phase 3 clinical trial results for these frontrunners let alone have approval from Australia’s health regulator for use of any of the vaccines so you would think, *you would think*, we wouldn’t put all our eggs in one basket right? Well you would think wrong. While other western nations hedged their risks and signed contracts with multiple providers, our government relied almost entirely on AstraZeneca. I’m certainly not taking anything away from the AstraZeneca vaccine – I understand it’s a great vaccine. But I will say this: in the eyes of the Australian public (wrongly), if this was a popularity contest then Pfizer is to Apple’s iPod as AstraZeneca is to Microsoft’s Zune. What’s a Zune? Exactly.

But just for argument’s sake, let’s say someone more sensible was in charge like oh idk, Grandpa Kev. And we did hedge our risks like those other western leaders. Let’s say that because we couldn’t expect our prime minister and health minister to peer into the future to understand which vaccine would be best at suppressing the spread and severity of the virus, they purchased enough of each of the above vaccines to inoculate all of us. This would have cost us a total of US$1.74b – or A$2.38b. Keep this figure in mind.

I haven’t even considered how much cheaper this would have all been if we had purpose-built quarantine facilities in place (which, despite ScoMo’s protestations on zero legal basis is specifically a federal responsibility under section 51(ix) of the Australian Constitution) to prevent viral leakage into the community while we carried on vaccinating the population at a glacial pace. Just throwing this out there so you know this was an alternative solution as well.

Counting the cost of lockdowns

There are a myriad of immeasurable costs associated with these lockdowns and this outbreak more generally. Loss of life, loss of quality of life, loss of employment, underemployment, mental health issues, increased incidences of domestic violence etc. I’m not taking anything away from these vital issues but they are not issues we will explore. Not because they’re insignificant, rather they are not quantifiable in dollar terms. Wasted taxpayer funds, lost economic output and opportunity costs however, are. Let’s start with wasted taxpayer funds.

Wasted taxpayer funds

The federal, state and territory governments have been forced to shell out billions in taxpayer dollars (and borrowed dollars) to help keep the economy afloat “during these unprecedented times” (sorry). As at 30 August 2021, the federal government has handed out $5.05b in ongoing relief payments to those who have lost hours as Aussies have been ordered to down their tools. We’re currently projected to see meaningful easing of restrictions by around mid-October. The federal government tells us it’s forking out around $1b per week on these ongoing relief payments. Let’s assume 6 more weeks of lockdown at $1b per week for a total of $6b. Add this to the $5.05b already spent and we’re on $11.05b spent just by the federal government on relief payments.

The federal government is also spending undisclosed sums of money on all sorts of ancillary costs such as marketing campaigns and mental health programs. Finally, avoidable excess borrowing to help finance all this spending puts Australia’s AAA credit-rating at risk which could potentially raise the cost of debt – something future generations (and young millennials) will curse earlier generations over. No flipping clue how much these costs might be so we will disregard for the sake of argument.

State and territory governments have mostly been carrying the burden of helping prop-up businesses during the lockdowns. Unfortunately information on money spent by state and territory governments in the form of business grants, wage subsidies, government charge rebates and tax deferrals and waivers is not readily-available. State and territory governments (with federal support) also cop the bill for covid treatments like hospital and ICU beds, medications, fees for health professionals etc. Financial details of this spending is also not readily-available. Let’s disregard all state and territory spending for the sake of argument but know that we’d expect these costs (especially business relief) to be monumental.

Lost economic output

I’ll admit this is almost impossible to measure. We can only work off of estimates and I’m not going to attempt to estimate. So we’ll work off of projections made by professionals who are much more intelligent and better-informed than I am. You may recall in Economics 101 we discussed a concept called GDP or Gross Domestic Product. GDP represents the value of all final goods and services produced in a country within a fixed period of time (usually a year or a quarter).

On 13 August 2021 AMP’s chief economist, Shane Oliver forecasted that the lockdowns would shave as much as 2.5% off of Australia’s GDP in the September quarter, equating to around $17b in lost economic output (although we should appreciate the lockdowns will likely extend beyond the September quarter). For what it’s worth, the federal government itself is estimating a hit to GDP of between 2-3.5%. On 21 August 2021 Shane Oliver estimated a total cost to economic output of between $20-25b. If you’re curious about how much this thing may be costing us on a running basis, Shane Oliver estimates the Greater Sydney lockdown alone is costing the economy $1b per week and Josh Frydenberg (the Federal Treasurer) estimates a more conservative figure of $700m per week.

Given these are estimates, none of them are reliable so let’s give the government the benefit of the doubt and work with Shane Oliver’s lower range estimate of $20b. In my view this is a conservative figure for reasons that are too lengthy and dry for this article but let’s roll with it. Some people might argue that I’m double counting by combining government spending and lost economic output, reasoning that the government relief packages are intended to supplement economic output. This is a solid argument. Enter opportunity costs.

Opportunity costs

You may also recall in Economics 101 that we talked about opportunity cost – the value of the next best alternative to the investment or spending decision you land on. The billions in taxpayer (and borrowed) funds? That’s money that could’ve been spent on schools, hospitals, infrastructure, social security etc. It is wasted money. This is like purchasing a pair of unsightly birks when you could have purchased a perfectly respectable pair of sneakers instead. So yes, although spending taxpayer money and taking on more debt to fund these programs is contributing to economic output (directly or indirectly), there are significant opportunity costs to doing so. And so I argue that I’m not double counting because the government could have spent that money on something more productive.

So all up, we’re on a conservative estimate of $11.05b in covid relief payments from the federal government alone, a conservative estimate of $20b in lost economic output and we’re disregarding other federal government spending and all state and territory spending because we lack the necessary information to do the math. This brings us to a total loss of $31.05b which is a very conservative estimate for a $1-1.5 trillion a year economy but we’re being undeservedly generous to the government with our math so as to not be scolded for overestimating anything. Remember the cost of hedging our risks and ordering enough of each of the frontrunning vaccines? $2.38b. Less than one-tenth of what we’re conservatively expected to lose in lockdown.

Angry? You should be.