Businesses and jobs will be lost permanently because of the coronavirus crisis, which has caused a much faster economic shock than the Great Depression.
Treasury predicts unemployment to peak at 10 per cent as a result of the pandemic, with some businesses expected to go under.
The jobless rate was higher during the economic devastation through the 1930s, but the numbers steadily rose over the course of years rather than months.
Treasury boss Steven Kennedy says the disease is having an unprecedented impact on economies worldwide.
“We have never seen an economic shock of this speed, magnitude and shape, reflecting that this is both a significant demand and supply shock,” he told a Senate committee in Canberra on Tuesday.
He said the world economy could change in important and sustained ways after the shock of the virus subsides.
“Some jobs and businesses will have been lost permanently,” Dr Kennedy said.
Australia’s economic relationship with its largest trading partner China has been dragged into the fray as diplomatic tensions flare between the two nations.
Dr Kennedy believes the crucial financial ties can help both countries recover from the economic crisis.
“There is great economic return to Australia in continuing to support Chinese development and growth through our trade relations,” he said.
Foreign investment rules have been temporarily tightened to give Treasurer Josh Frydenberg more oversight of overseas capital being tipped into Australia.
Dr Kennedy said the government could make the new measures permanent, noting a number of other countries had taken similar steps.
Mr Frydenberg and Finance Minister Mathias Cormann will provide economic updates to parliament on May 12 to outline the government’s $320 billion in coronavirus measures.
Wage subsidies designed to help six million workers cling to jobs are at the heart of the government’s response.
Treasury deputy secretary Jenny Wilkinson told the Senate committee 540,000 businesses covering 3.3 million workers have registered for the JobKeeper scheme.
It was also revealed 757,000 of the 762,000 applications for early access to superannuation have been approved, with payouts totalling $6.3 billion.
More than $4.5 billion has been paid out to businesses a week earlier than scheduled.
Dr Kennedy said how long restrictions remain in place would make a huge difference to growth projections.
“The next couple of weeks will be very important as we become clearer about the pattern of the social distancing measures and how they unfold,” he said.
Shadow treasurer Jim Chalmers said Mr Frydenberg’s speech would not be a substitute for comprehensively updated budget figures and forecasts.
“Australians shouldn’t have to wait much longer than usual without the government being upfront with them about the impact of this virus, and the government’s response,” he told AAP.
The Morrison government will also provide an update on the economic and fiscal outlook in June ahead of the October budget.
Originally published as Virus economic hit worse than Depression