Australians face flood recovery tax

Australia unveiled a flood tax on higher income earners Thursday as Prime Minister Julia Gillard warned the deluge would shave 0.5 points off GDP in fiscal 2010 and cause Aus$5.6 billion in recovery costs.


Gillard said the record inundation, which crippled the mining and farming state of Queensland this month, "may prove to be the most expensive natural disaster our nation has ever seen", with coal mines to suffer for months to come and farmers facing "seasons" of difficulty.


"Treasury's preliminary estimates are that GDP growth in this financial year will be about half a percentage point less due to the floods," Gillard told the National Press Club, providing the government's first official estimates of the disaster's economic impact.


"The best preliminary estimate of the direct cost to the federal budget of the summer's flood disaster is Aus$5.6 billion ($5.6 billion)," she added.


Warning that the figures were early and could rise, Gillard announced a raft of spending cuts and said she would introduce a one-off levy on middle and high income earners to meet the cost.


The 0.5 percent tax, expected to raise about $1.8 billion, would only apply to incomes higher than $50,000 for the 2011-12 financial year.


It would increase to 1.0 percent for earnings above $100,000, and people directly affected by the flooding would be exempt. The prime minister said it would cost someone earning $60,000 just $1 a week.


But Gillard, who holds a wafer-thin majority in parliament, may face an uphill battle to pass the measures after opposition leader Tony Abbott said his conservative bloc were against the levy.


"This is another government spending programme for which no-one is going to be held accountable if things go wrong," said Abbott.


Gillard must convince rural independents and a Greens MP to vote with her, which could prove a difficult task given most of the programmes slashed or put on hold Thursday were for carbon abatement or to boost regional areas.


One of her key allies, Tony Windsor, prefers a permanent national disaster levy and warned her not to count on his vote, while fellow independent Rob Oakeshott said there were a "number of issues" with the government's package.


The Greens, a key minority coalition partner, slammed the axing of carbon reduction programmes, saying it made no sense to cut such measures to fund disaster relief "when such disasters will be made worse by climate change."


But Gillard defended the proposals as "an economically efficient approach as we move to pricing carbon" and urged all MPs to approve her package when parliament resumes next month.


"This is in the interest of the people of Queensland. This is in the interest of people that are flood affected," she said.


"This is in our economic interest and so we should get it done."


The prime minister said Canberra would fast-track approval for temporary skilled migrants who wanted to go to work in flood areas in a bid to address labour shortages brought on by the country's Asia-driven mining boom.


"Skilled labour will be as important as funding for rebuilding," she said, promising a "five-day turnaround" for applicants hoping to join the recovery drive.


Unemployed Australians would also be paid to move to Queensland and work. Australia's jobless rate is at 5.0 percent, a level widely considered consistent with full employment.


Gillard said the economy was strong enough to withstand the pressures of rebuilding without the government borrowing money, stressing that to do so would ultimately increase inflation and interest rates.


She repeated her vow to bring the budget back to surplus by 2012-13, when she said the economy would be "running close to full capacity".


Commodities-driven Australia was the only advanced nation to dodge recession in the global financial crisis, with strong Asian demand for its coal, iron ore and other resources helping it stave off the worst of the downturn.