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Monday, 21 February 2011
Page: 663

Mr CRAIG THOMSON (4:59 PM) —On behalf of the Standing Committee on Economics, I present the following reports of the committee, together with the minutes of proceedings of the committee: Advisory report on the Tax Laws Amendment (Temporary Flood Reconstruction Levy) Bill 2010 and the Income Tax Rates Amendment (Temporary Flood Reconstruction Levy) Bill 2011, and Interim report: Review of Wild Rivers (Environmental Management) Bill 2010.

Ordered that the reports be made parliamentary papers.

Mr CRAIG THOMSON —by leave—The dimensions of the Queensland flood disaster have been staggering. Between 30 November 2010 and 24 January 2011, 35 people have died as a result of flood related incidents. This is the foremost tragedy of these events, and the committee unanimously extends its deepest sympathies and condolences to the families and friends of the victims.

From the end of November 2010 through to mid-January 2011, flooding occurred over large areas of South-East and Central Queensland, with areas such as Condamine and Chinchilla being flooded several times. In addition, in North Queensland the Herbert River flooded, with the town of Ingham being isolated. Almost every river in Queensland south of the Tropic of Capricorn and east of Charleville and Longreach, except for the south-east coastal fringe south of Maryborough, reached major flood levels at some stage between 26 November 2010 and 7 January 2011. From 10 January to 12 January 2011, floods affected South-East Queensland, causing major flooding of the Lockyer, Bremer and Brisbane rivers. These were the most destructive floods of the December-January period.

The loss of property has been devastating. As of 21 January 2011, an estimated 5,400 homes across Queensland saw flooding over the floorboards. The number of affected homes is 21,000, while a further 15,000 had flooding in their yards. Three thousand six hundred homes were evacuated and 5,900 people were evacuated. In response, the government established over 70 evacuation centres. The property damage has had a terrible effect on individuals and families. The Australian Council of Social Services stated:

Some of this will have an effect on people that lasts many years. Even though the flood itself was relatively short in duration, if your house and all your household possessions were destroyed—family records were often completely lost—that may have all sorts of impacts, material, emotional and psychological. In many cases it will take many years for people to rebuild their lives to the point they were before the flooding.

Of Queensland’s 73 local government areas, 51 have had a disaster declaration since the events started, and 14 of those local government areas have been severely affected by the flooding. Ninety thousand kilometres of local government roads have had some form of damage.

Cyclone Yasi ripped through the Queensland coast near Innisfail and Cardwell on the morning of 3 February 2011. Rated category 5, the cyclone featured extreme conditions such as wind gusts of up to 285 kilometres per hour, a lowest air pressure of 929 millibars at Tully and a five-metre storm surge at Cardwell, just south of Mission Beach. The environment also suffered. Preliminary figures show that Cyclone Yasi destroyed 150 homes and left a further 650 uninhabitable. A further 2,275 homes were moderately damaged and tens of thousands of homes were without power for a long period of time.

At the same time, we saw floods in Victoria. At the end of January, the Victorian Department of Primary Industries calculated that the damage to agriculture could be as much as $2 billion. This includes over 41,000 hectares of field crops, over 51,000 hectares of pasture, 83,000 tonnes of hay and silage, and almost 2,000 kilometres of fencing.

In evidence before the committee, the Queensland Treasury outlined progress so far in that state. On 15 February, the Premier tabled the Queensland Reconstruction Authority Bill in the Queensland parliament. The new independent authority will manage and coordinate the government’s program of infrastructure reconstruction and recovery within disaster affected communities. It will be overseen by a Queensland reconstruction board which will be chaired by Major General Slater. The primary mechanism for responding to natural disasters is the Commonwealth-state natural disaster relief and recovery arrangements. The Australian and Queensland governments are developing a national partnership agreement which is intended to further strengthen the governance and accountability provisions of the NDRRA. This will include detailed performance monitoring and reporting arrangements and new governance arrangements, including the establishment of the Australian Government Reconstruction Inspectorate.

There is a minority report in which members of the opposition say that it is unclear how or where the money will be spent. Quite clearly that flies in the face of the way in which this money is to be monitored and used and the purposes for which the money is being raised, and that is to make sure that we can rebuild Queensland and the areas that have been affected by the disaster.

We also heard evidence from the Insurance Council of Australia. They have allocated reserves of over $2 billion to meet costs arising from the Queensland floods, which comprise some 43,000 claims. For Cyclone Yasi, half a billion dollars has been allocated, comprising 30,000 claims. There were two issues that the Insurance Council identified. The first is developing a standard definition for ‘flood’, which needs to happen, and the second is developing publicly available flood data that insurance companies can use to accurately determine the flood risk for individual properties. There was some discussion and evidence from the Insurance Council about ways in which insurance could be better used more globally. The view of the majority on the committee was that natural disasters are a reminder that there are a range of significant policy issues in the insurance field that would benefit from a government sponsored review. The committee encourages the government to look at such a process.

The Commonwealth response to the floods is worth putting on record of course. On 27 January 2011 the Prime Minister announced a package to help rebuild flood affected areas. The government estimates that its contribution to the reconstruction of essential infrastructure would be $5.6 billion. This is made up of two-thirds coming from savings in government programs and one-third coming from the flood levy, which was the bill that the committee in particular was asked to look at.

What is interesting is the response of the markets once that announcement was made. The markets are very sensitive to public pronouncements in relation to the economy, and this was one of those. The markets made it quite clear—for example, Citi stated:

The package helps to moderate some pressures on inflation from the flood.

At the margin the package assists the RBA in managing the inflation impact from the rebuild.

The Commonwealth Bank said:

There are some attractive features to these proposals. Adding an (essential) rebuilding overlay to an economy already at full employment carries with it some inflation risks. Making room by lifting taxes and cutting spending looks appropriate even though the fiscal backdrop remains very good.

Christopher Joyce, the managing director of Rismark, said:

More specifically, the government is trying to reduce the inflationary consequences of the floods for fear of the influence they have on monetary policy. This makes sense.

Craig James from CommSec said:

… this is the right levy for the times—modest in size, temporary, progressive and applying to those on higher incomes …

The proposed operation of the bill is that it raises a one-off levy that applies to individuals’ taxable income in 2011-12. It is projected to raise $1.56 billion in 2011-12 and $235 million in 2012-13. Funds raised will be paid into consolidated revenue, where the arrangements that I have already mentioned come into place in terms of monitoring their spending. The levy does not apply if a taxpayer earns less than $50,000 annually. If the taxpayer earns between $50,000 and $100,000 in 2011-12, then the income above $50,000 is taxed at a rate of 0.5 per cent. If the taxpayer earns more than $100,000 annually, then they pay $250—the tax on their income up to $100,000—and then their income above $100,000 is taxed at one per cent.

With this structure, the levy is clearly progressive. In evidence, both the Australian Council of Social Security and the Australian Council of Trade Unions supported this feature. Certain classes of taxpayers can be excluded from the levy. This comprises those people who are affected by the natural disaster between 1 July 2010 and 30 June 2012. In order for the exemption to apply, the Treasurer must make a legislative instrument to this effect.

It is worth noting that the total number of taxpayers earning in excess of $50,000 is 4.84 million. From this figure, we subtract the 185,000 people who are estimated to be declared exempt from the levy, which leaves about 4.66 million people who are expected to pay the levy. This is out of a total of 10 million taxpayers, so it is just under half of taxpayers.

By way of comparison, the committee asked the Treasury what proportion of taxpayers paid the one-off increase to the Medicare levy from 1.5 per cent to 1.7 per cent to help pay for the gun buyback scheme in 1996-97. The answer was that 6.9 million individuals paid the Medicare levy, so just over two million people paid the levy out of 8.6 million taxpayers. That made up 80 per cent of taxpayers at that time, whereas this levy only affects fewer than 50 per cent of taxpayers.

This is a levy that is required to make sure that we are able to meet the challenges of the rebuild in Queensland. Two economists appeared before the committee. Each of them had differing views in relation to how the funds could be raised, but neither of them said that raising the levy was a wrong option for the government to look at. Quite frankly, the markets have said that this is a response that we should and must take.

It is interesting also to note the response of the public. There has been poll after poll in relation to this, and they have shown overwhelming support for the levy. It is worth mentioning polls because the member for Moncrieff, the deputy chair of the committee, ran a poll on his website as to whether the levy should be paid. When we came into the House, I think it was running at around 70 per cent in support of the levy. Even those opposite know that this is a levy that is supported by the general public.

At a time of widespread tragedy and devastation, the broad spectrum of Australian society has responded to the floods and other natural disasters in a multitude of ways such as through donations of money or goods, giving others temporary accommodation, and clean-ups. Governments are repairing and rebuilding infrastructure. The question presented by the bill is how the government may pay for the rebuild. The committee is of the view that we can fund the recovery of essential infrastructure so as to reflect our wider response to the disaster. In evidence, the Australian Council of Trade Unions referred to our need to take collective responsibility for each other. They said:

… as a nation, we believe we need to take collective responsibility for each other’s welfare, particularly in times of disaster …

This is a levy that is required. It is something that is needed. The recommendation of the majority on the House of Representatives Standing Committee on Economics has recommended that the House of Representatives pass this bill.