Australian PM Announces Flood Tax

by Mary Swire, Tax-News.com, Hong Kong

28 January 2011

With flooding in Australia having affected more than 3m people and making it one of the most costly disasters in the nation's history, the government has proposed a temporary tax to help pay the more than AUD5bn (USDD4.96bn) it expects to spend on reconstruction. The floods have shut down coalmines, ruined crops, washed away roads, rail lines and bridges and destroyed thousands of homes and businesses.

A statement from the Prime Minister’s Office said: “The Government recognizes many Australians have already donated to people affected by the floods to help them with personal costs. That is a great contribution, but entirely separate from the job of rebuilding essential infrastructure in flood-affected regions – which is what today’s announcement, including the progressive levy, is focused on”.

The Prime Minister, Julia Gillard, said that the tax would apply to Australians on above-average incomes from July and would raise AUD1.8bn. The levy of 0.5% in 2011/12 will be for those earning between AUD50,000 and AUD100,000, and 1% on taxable income above AUD100,000. Someone earning AUD60,000 a year will pay 96 cents per week, and someone earning AUD100,000 a year will pay AUD4.81 per week. The levy will be paid through tax taken out of regular pay. To make sure those affected by the floods do not have to pay the levy, anyone who received an Australian Government Disaster Recovery Payment for a flood event in 2010‑11 will be exempt from the levy.

"The great floods of this summer have destroyed billions of dollars of wealth and robbed us of billions of dollars of income. In time they may prove to be the most expensive disaster in Australian history," Gillard said.

To ensure recovery and rebuilding can start as soon as possible, and to provide certainty to the Queensland Government and Queensland local authorities, the Australian Government has agreed to make an advance payment of AUD2bn to Queensland.

Gillard said the national government would also curb spending on other areas to help patch up its budget and that the governments of flood-affected states would contribute flood recovery funds. Cutbacks will include a number of environmental programmes, including green car and energy initiatives. The Greens said they supported the new tax but added that it "beggars belief that the government would choose to cut climate change" measures.

Queensland Premier Anna Bligh said that she understands a federal levy will be unpopular, saying: “When it comes to the levy, I understand no one wants to pay more but the people of Queensland didn’t want this disaster either”.

State opposition leader John-Paul Langbroek said that the Prime Minister had got the levy “badly wrong”, and that it was unfair that people who had been indirectly affected should have to help foot the bill. But the Queensland Treasurer Andrew Fraser accused Mr Langbroek of repeating the views of the federal Opposition Leader Tony Abbott. He has warned that victims of the floods would end up paying: "This is another government spending programme for which no one is going to be held accountable if things go wrong," he said.

The new tax will need the support of independent MPs to become law when legislation is introduced to parliament next month. As the Prime Minister relies on minor parties and independents in both houses, she faces a tough task.

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