International arrivals will be cut by well over half, making it tougher for Australians trying to return and another blow to the struggling airline industry.
People arriving from overseas will now have to pay for their two weeks of hotel quarantine, the national cabinet also decided on Friday. The fees and any hardship provisions would be set by the states and territories.
In the first week of July 8500 people arrived in Australia. The previous week the number was 6500.
Prime Minister Scott Morrison said from Monday, July 13, arrival numbers would be limited to 4175 a week - no more than 3150 in Sydney, 525 in Perth and 500 in Brisbane. The numbers flying into Sydney would be reduced further in coming weeks
Chief medical officer Paul Kelly said while there had been very few breaches of hotel quarantine, the Victorian example was a warning.
"A single breach, even if it's low risk can lead to a catastrophic outcome," he said.
Hotel quarantine began at midnight on March 28.
Since the borders were closed on March 20, only Australian citizens and permanent residents have been allowed in, other than people who have applied for specific exemptions from the Border Force.
Limited exemptions have been given for compassionate travel, business and medical workers, diplomats and Year 11 and 12 students.
Mr Morrison said in the 17 weeks since March 13, 357,000 Australians and permanent residents had returned.
Mr Morrison said while it would be more difficult for Australians to return home, Australia had to put the national interest first.
"There will be continuing access to Australia but the number of available positions on flights will be less and I don't think that is surprising or unreasonable in the circumstances that we find ourselves in," he said.
"We have to put the national interest first and the health of Australia and Australians first and that is the basis of the decision we have taken."
Mr Morrison also announced a national review of hotel quarantine by Jane Halton, a former Health Department secretary and a member of the government's coronavirus commission.
The review would cover a "very comprehensive set of issues", including measures to control infection, testing regimes and compliance, management of people's mental health and management of cultural diversity.
Despite the unfolding crisis in Melbourne and the cut to international arrivals, Mr Morrison is still pushing to reopen international flights in "travel bubbles" with countries such as New Zealand and Japan.
Mr Morrison said he spoke to Japanese Prime Minister Shinzo Abe on Thursday about travel possibilities for business people and scientists.
"It is pleasing to know that Japan, for example, would be seeing Australia as a potential place where there might be opportunities to reopen some very, very restricted and limited form of travel," he said.
He was to speak with New Zealand Prime Minister Jacinda Ardern on Friday afternoon.
"There is no imminent starting date, there is still a lot more work to be done to get to a point of having a trans-Tasman safe travel zone," he said.
"We discussed that today at the national cabinet about what states and territories could or would participate in that so there is a bit more work to do there ... I think we will have to be very patient about that."
But he said it was self-evident that the lack of international flights was damaging the economy. "That is obvious. You don't need modelling to tell you that, and the sooner we get some arrangements that are workable and safe, well obviously we would seek to achieve that."
Also on Friday the national cabinet shifted its advice on wearing masks.
The group has for weeks said masks are not recommended, but now says everyone in Melbourne should wear a mask if they are going outside and can't guarantee social distancing.
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