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Thursday, January 27, 2011

Government should “pay as we go” with flood relief: Gillard

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In an address to the National Press Club today, Prime Minister Julia Gillard announced a temporary levy and several policy and funding alterations to pay for the cost of rebuilding after floods in Queensland, Victoria, northern New South Wales and Tasmania.

Ms Gillard has dubbed the new levy as being a “highly progressive levy”, responding to the strength of the Australian economy which, Gillard says, allows the government to “pay as [it] goes” in funding the rebuilding effort. Ms Gillard expects that “by 2013 [the Australian Economy] will be running close to full capacity”.

Although the strong economy has allowed for the relief effort to go ahead quickly, Ms Gillard acknowledged that its strength is a double-edged sword. The low unemployment figure of about 5% means that few workers are available to work on the reconstruction.

To help overcome this problem, the Prime Minister has proposed quicker approval of temporary visas for foreign workers trained in skills that are required for the rebuilding effort. This means a five day turnaround for applications in those fields. The Prime Minister also proposed that jobless people from other states seeking government assistance for relocation should only be given the option of moving to Queensland so as to boost worker numbers there.

Gillard also explained to the Press Club that the government must provide funding in a way which will keep the balance between supply and demand so as to avoid inflationary pressures.

The levy, designed to aid the government in its promise to return the Australian budget surplus by 2012/13 whilst rebuilding after the floods, will pay 1.8 billion dollars toward the “first preliminary estimate” of 5.6 billion dollars required from the government to pay for rebuilding.

The remainder of the 5.6 billion will be raised by a series of policy and program alterations and cancellations. This includes “abolishing, deferring and capping access to carbon abatement schemes”. Schemes to be cancelled include the Green Car Innovation Fund (or “Cash for Clunkers” program) and the Green Start Program. The Solar Hot Water Rebate will be altered with a new demand management scheme and funding for the Global Carbon Capture and Storage Institution will be reduced and the body restructured.

Ms Gillard announced that a price on carbon would replace these programs and help improve the budget. Gillard explained the some of the cancelled programs are “not as effective as a carbon price”.

In addition to these cuts, six planned Queensland road and infrastructure projects will be delayed and their funding redirected to the rebuilding effort. This will make a major contribution to funding the rebuilding and will free up more skilled labour for the rebuilding of basic infrastructure. Gillard also said that the deferral will “ensure value for money”.

So how will the relief money be distributed? If the bill passes through Parliament unaltered, there will be an immediate upfront payment to Queensland of two billion dollars for rebuilding projects in the more than 60 flood-affected communities in the state.

The money for the Queensland reconstruction effort will be managed by the Queensland Reconstruction Authority. This authority will arrange the state-wide reconstruction plan.

Payments to other states will be managed through the natural disaster relief and recovery agreement between the commonwealth and the states.

The one-off levy to most Australian income earners will be charged “like income tax” and is proposed to be implemented only during the 2011/2012 financial year. Lower income earners earning 50 thousand dollars per year or less will not pay anything. People with an income between 50 thousand and 100 thousand dollars per year will pay 0.5 per cent on taxable income per week, whilst people earning 100 thousand dollars per year or more will pay one per cent on taxable income per week.

The Prime Minister gave the examples of people with an income of 60 thousand dollars per year paying just under one dollar per week, and people earning 100 thousand dollars per year paying just under five dollars per week.

Those people affected by flooding will be exempt from paying the levy. This exemption is awarded to those who claimed the Disaster Assistance Recovery Scheme payouts from the government earlier this year.

The Prime Minister was at pains to make it clear that the levy is “not like the Medicare levy” – a levy model that political and financial commentators had predicted.

Public transport is not usually included in the Commonwealth’s contribution to natural disaster relief funds, however Ms Gillard has explained that there is some possibility that the government could fund this area under the “community rebuilding” section of the funding agreement with the states.

In an effort to calm people who have already given significant sums of money to flood appeals, Ms Gillard explained that, where the flood appeals saw the money being sent directly to the people affected by the flood, the levy will pay for the reconstruction of infrastructure.

The levy will not be increased if the government’s planned return to surplus by 2012/13 comes under threat. There will instead be further cuts to government programs and spending.

The bill must now get through parliament, where it may struggle to pass both the upper and lower houses. With the legislation to be introduced in the first sitting week of parliament for 2011, the government has a very short time cartoonto conduct a hard sell for the crossbenchers who keep it in power. The opposition opposes a levy, and Greens Senator Christine Milne announced, shortly after Gillard’s address, the Greens’ disappointment with the cutbacks for climate change initiatives in response to what they consider a natural disaster exacerbated by climate change.


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