Levy turns flood reconstruction into political mess

Gillard and Bligh tour QLD flood areas
Image source: The Herald Sun

Despite a natural disaster that cost numerous lives, uprooted thousands of Queenslanders and left them homeless, and a reconstruction effort that will take years to complete, it is good to see politics in Canberra hasn't changed much. Both Liberal and Labor are squabbling at each other and all who will listen about how the other side isn't playing fair. Now they're turning to the popular kids - Oakshot and Windsor - to pick sides and tell the others they are wrong. For all the talk of a "mateship tax" and politicians keeping one eye on the "Lodge", the efficacy of the tax itself is being ignored. Instead, angry talk back listeners and radio hosts like Niel Mitchell are deciding on the validity of the tax, based on its popularity. No matter how the Gillard government plans to raise funds for the reconstruction effort, some people will be unhappy. But a longer term approach to disaster recovery funding is what really needs to be discussed.

The first step the government took to addressing the financial pitfall for the Queensland floods was winding back and cutting down on "Green investment" spending. While such actions were necessary, amongst some circles, it remains unpopular all the same. Julia Gillard herself may not believe (or want to acknowledge) that the floods of Queensland, NSW and Victoria can be attributed to climate change, but a reduction in "Green investment" won't make the flood waters rise. A lot of the Federal government's environmentally friendly initiatives have cost a lot, yet delivered little. The danger that exists in withdrawing funding from environment initiatives, is that the funds won't return. Once government coffers start filling up, new promises will be made in other areas, and the funds will go there.

The political debacle over recovery funding that has ensued, is paying little attention to the actual methods the Gillard government is doing to assist the recovery effort. Both Gillard and Abbott have done their fair share of hugging and 'meeting and greeting' flood victims in front of media packs. But it is the mentioning of the word 'tax' that is causing an even bigger stir amongst the opposition and tabloids. Reducing funds to existing schemes and delaying promises is one thing, but instituting a tax is laden with politically damaging connotations. Abbott was quick to put on the rhetoric about a tax not being about "mateship", but a cover up scheme for a government that is spending too much. Yet for all the spin and hot air, the tax itself is economically credible. The government must spend money on reconstructing Queensland's savaged infrastructure. As Queensland is a major industrial and mining hub of Australia, it makes economic sense to rebuild roads and rail that once were the economic lifelines of Australia during the GFC. Yet even principally, the Federal government should assist. As a Federation, each state assists others in times of need; it is the very essence of our federation. Otherwise we would be a cluster of 9 different independent States.

People may be outraged that they have already given to Queensland flood relief funds, yet that money only goes to helping people directly after the event (through relocation and clean up costs), not rebuilding roads, rail, hospitals and schools that have been washed away. Funds for the reconstruction need to come from somewhere, and raising revenue by adding a levy to income tax, at this point in time, appears to be the most economically sensible method. While NSW Premier Kristina Keneally claims that such a levy will put too much pressure on households and mortgages, this tax won't affect such pressure. By legislating such a tax, the RBA can clearly see funds exiting the market and slowing down the economy (because as people pay more tax, they spend less). Hence the RBA will defer increasing interest rates, because the Federal Government will be (inadvertently) correcting the economy cycle. At the end of the year, tax or no tax, families and households will be relatively the same. It is a question really of whom will be taking money out of your pay packet: the Government for rebuilding Queensland, or one of the big banks?

The political squabble and concern for people's hip pocket aside, one of the popular kids in the school that is the Australian parliament, has raised a valid point. Rob Oakshott believes that a national disaster reconstruction fund should be established. As natural disasters sporadically occur within each century, a more structured planned system in financing the recovery effort needs to be established. Every time a disaster occurs, whether it is a cyclone, flood or bushfire, the government's bottom line and spending promises are compromised in order to pay for the clean up and reconstruction. Gillard's flood levy may pull Queensland out of the mud this time, but it doesn't guarantee funds for any other disaster that could occur within the next few years. The real debate that should be occurring, is whether the flood levy should be transformed into an established "disaster fund" levy. That way, funds (or partial funds) will be on hand in times of National and State crisis. As politically dangerous taxes can be, Australia may continue to place itself in financial danger if it doesn't acknowledge and plan for future events like the Queensland floods.

Links: 
Flood levy does RBA's job - The Age (Business Day)
Flood levy to test Gillard's leadership - SMH
Levy flushes out a nation of heartless bastards - ABC 'The Drum'

Gillard faces battle for flood levy support - ABC Online

All bark but no bite - National Times

No excuse for floods tax: Abbott - The Australian