Home > Economic policy > How to pay for the floods

How to pay for the floods

January 27th, 2011

The floods in Queensland and other states have destroyed a lot of public infrastructure that will need to be rebuilt, as well as damaging crops and reducing output in other industries. In most cases, if the infrastructure made sense in the first place, it makes sense to replace it, which raises the question of how to pay for it. The proposals Gillard seems likely to announce, centred on a one-off levy sound about right to me. As I argued a while back, the rebuilding is likely to raise the level of economic activity, as measured by GDP, which is the relevant measure for macroeconomic and fiscal policy. So, if the settings were about right before, it makes sense to pay for the rebuilding now, through a once-off levy, so that the net macroeconomic impact is approximately neutral.

On the other hand, the government should not seek to offset the loss in revenue associated with lost output and profits during the flood, or from flood relief expenditure. This should be concentrated in 2010-2011, and therefore should not affect the timetable for return to surplus very much. I assume (but am not absolutely certain) that the government has accepted this.

Another bonus is that the appalling “cash for clunkers” scheme is dead for good. I won’t count this as an actual saving, since it seemed unlikely ever to happen, but it’s good to have this confirmed.

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  1. Ikonoclast
    January 27th, 2011 at 06:56 | #1

    The Future Fund has Building Australia Fund assets of 9.48 billion dollars. Perhaps there should be a call to use this money, at least in part. Also, there is no pressing need to return the budget to surplus. The economy can absorb the rebuilding stimulus as this will counteract the downtick in economic activity caused by the floods.

    One-off levies smack of a populist knee jerk reaction. The fetish of surpluses for the sake of surpluses also ought to be resisted. It would be more helpful to get better control of credit money creation by the private banks than to use interest rates and surpluses as an inflation check.

  2. hc
    January 27th, 2011 at 07:00 | #2

    The overall impact of the floods themselves will be deflationary – loss of incomes etc. Why not fund capital works by borrowing which will be less deflationary than taxes? This is a time where an increased deficit makes sense. It also spreads the cost of the capital items somewhat which also seems a good idea.

  3. Ken Lovell
    January 27th, 2011 at 07:21 | #3

    What hc said. Investment in capital works should generally be funded by surpluses or debt, not treated as recurrent expenditure. The renewal of infrastructure will pay off in future years because the new bridges, roads etc will certainly be more efficient and effective than those they replace.

    The government should also look at redirecting the stimulus money that has not yet been committed. Yes it’s tough on the schools that haven’t had their new hall built yet but if the true purpose of the money was to stimulate economic activity and not pork barrel marginal seats, it will achieve the same result and for a better purpose if it is used for flood reconstruction instead.

  4. BilB
    January 27th, 2011 at 09:33 | #4

    I, personally, will not contribute to, subscribe to, or support and any federally funded rebuilding measure until I hear from the government their

    perceived explanation for the cause of this flood series,

    and their,

    assessment of what can be done to prevent this unprecedented type of devastaion occuring again.


    what efforts will be undertaken by the Australian nation to work towards a process of climate stabilisation.

    A rebuilding process that does not understand the nature of the cause, and therefore the forward rate of risk of recuurence, is fundamentally flawed.

    A government reponse of “we just don’t know how often these events can occur” is not acceptable, and a certain indication of fundamental failure to comprehend applied climate science.

    What I suspect that we are heading towards is an ever tightening votex or pysical and financial failure.

  5. Chris Warren
    January 27th, 2011 at 09:40 | #5

    Its not clear to me why any damage on flood plains due to flooding should be paid for by taxpayers (except for funding emergency services during the event).

    Funding of buy-outs of flood plain property and then rezoning these areas may be a better option.

    Even worse floods have been recorded and climate change probably will increase the coastal severity of minor flooding.

    If the rich want to gentrify such ‘waterfront’ areas then they should bear the full additional costs of their decision. Leave the PAYE and pensioner taxpayer alone.

  6. Salient Green
    January 27th, 2011 at 10:15 | #6

    I’m with #4 and #5 on this. I have not even made a donation because I have not been happy about development in flood risk areas especially from an environmental view. As Chris said there have been worse floods and you can be sure there will be worse, much worse to come.

    If or when I see some evidence of a major change in the culture of development in those areas affected in these recent floods, for the avoidance of future flood damage, then I will be more comfortable with making donations and paying a levy.

  7. Alan
    January 27th, 2011 at 10:49 | #7

    I am almost there with #4 5 and 6, except that governments have also neglected their duties by allowing excessive floodplain development. I think it would be unfair to penalise people this time around, but I would draw a bright line around future floodplain development. I would also suggest the federal government develop some intestinal fortitude and start discussing the cost of climate events to the economy and the need for urgent action.

  8. Ben
    January 27th, 2011 at 12:43 | #8

    Isn’t now a good time to take the axe to some of the sillier budget items in the middle class welfare category? Such as the FBT concession for leased vehicles, a public expenditure that has (as far as I can see) no public benefit?

  9. Charlie
    January 27th, 2011 at 12:52 | #9

    Why is “dams” such an unmentionable word? The floods in Queensland would not have happened if the Goss-Rudd government of 1990-91 and all its successors had not refused to allow any significant new dams being built.

  10. may
    January 27th, 2011 at 12:54 | #10

    pysical and financial failure?

    oh nooo

    South Korea and Australia apparently had similar responses to the flash credit drought.

    as far as the development/developer debate is concerned


    i’m giving nothing
    because it’s just a “knee jerk populist response or there were rich involved so bugger the rest or i wasn’t there or im alright jack or i don’t like the way “they”are going about it

    is neither here nor there.

    helping because help is needed is not an ideological or political position ,as far as i’m concerned.

  11. iain
    January 27th, 2011 at 12:55 | #11

    Barnaby has already called for the scrapping of climate change initiatives to fund flood reconstruction. A little bit like putting off a hospital visit for a serious wound to pay for some more bandaids. Good ol’ Barnaby.

  12. Ben
    January 27th, 2011 at 13:08 | #12

    Are you proposing to build dams to be predominantly empty (ie. to assist in the event of flood) or predominantly full (for water supply)? If the former, how frequently are you prepared for the dam capacity to be insufficient?

  13. wilful
    January 27th, 2011 at 13:08 | #13

    BilB :
    I, personally, will not contribute to, subscribe to, or support and any federally funded rebuilding measure

    So, going to jail for tax avoidance then, is it?

  14. Bazza
    January 27th, 2011 at 13:15 | #14


    ‘Sounds about right’???? Are you kidding. Get ya blinkers off champ. Why should good, decent hard working people who pay their tax, have to fork out more money to a morally bankrupt government who splurges money on pink bats, school halls and silly internets! What a waste! Here’s an idea for you and Gillard, ‘get ya paws out my pockets!’
    But before I go, I do have one question: ‘If I leave the tap on in the laundry and it floods out my apartment, will I qualify for flood relief and be exempt from the flood levy’. (and if you think that sounds stupid, so does the idea of living on a flood plain!).

  15. BilB
    January 27th, 2011 at 13:24 | #15

    Help IS at hand, May.

    But there are some thousands of people who will be severely disadvantaged because the real causes of this series of disasters have become a political football.

    The bleeding heart response is “oh, help the poor people….give generously”.

    That is not the way forward.

    Recovery from this disaster and the hundreds of disasters yet to come at an increasing rate should not be a matter of charity. It should be automatic, and automatic because we know what is coming, have prepared structurally, and most importantly have done everything possible to prevent the problem becoming steadily worse.

    I am fed up with sad faced sympathetic politicians who milk disasters for the political value, then carry on with with policies which only serve to compound the devastation as they fail to address the core issue. Crisis management, it is the worst and most expensive kind of government.

  16. BilB
    January 27th, 2011 at 13:41 | #16

    If necessary, Wilful.

    I am facing being penalised for an environmental consequence that I have warned the government repeatedly would occur, and that government has failed to act on the warnings by myself and the many thousands of others. Not only do we all facing paying the penalty for the damage caused but money that we do pay intended to be used for mitigation of environemntal change is being pocketed by the electricity industry who are under no obligation to reduce their CO2 emissions that contribute so devastatingly to this problem.

    Australians are the worst environmental recidivists in the word today. This is not my choice, it is the choice of our governments (plural). And I do not appreciate it.

  17. BilB
    January 27th, 2011 at 14:19 | #17

    In fact I propose that the funding for the disaster recovery should be taken from the electricity industry electricity price increase slush fund, which I estimate should be around 12 billion dollars by now.

    These price increases were to cover the purchase of carbon credits, the bulk of which revenue was to be distributed to the public as compensation.

    So it would be totally appropriate to bill the electricity industry for the public share of the collections to pay out to the disadvantaged flood victims and to pay for damaged infrastructure.

  18. paul walter
    January 27th, 2011 at 14:46 | #18

    It seems a very similar response to GFC and the resentment toward paying out to keep the banks afloat.
    JQ makes the point that there are sound economic efficiency reasons for a quick resolution; reasons that will pay for themselves as theprocess is worked through.
    I’d say the real problem with an inquiry is not what it will reveal, but that those factors will not be dealt with due to pressure from vested interests, a bit like Big Pop regimes as a lurk for developers, deregulated of community concern factors and inputs.
    Developers dont like EPA’s, zoning, building codes and all that sort of stuff and with governments as spineless as they are ( look at the current farce in Tasmania) attempts to regulate business activity so that a public interest factor is taken into account are kicking against the wind.

  19. mediatracker
    January 27th, 2011 at 15:32 | #19

    BilB – You apparently are so prescient I wonder if you could let me know the winner of the big race on Saturday? I’m betting you are in the category that won’t be affected anyway.

  20. BilB
    January 27th, 2011 at 15:55 | #20

    What on earth do you mean, mediatracker????

    I am talking about what happened in the past and what we continue to do in the present. If you were a true “media tracker” you would be only too painfully aware of how John Quiggin’s much argued for “market based solution” to global warming has gone horribly wrong, exactly as my true prescience predicted over and over again.

    So here we are in the absolutlely most ludicrous position of paying billions of dollars a year in unnecessarily increased electricity prices to the biggest CO2 polluting industry in the country while they carry on polluting at a higher rate, and we now face paying even more to repair the damage that their industry predominately contributes to cause.

    The only real race underway is the one to screw the human race for as much money as possible before global warming causes total economic collapse. There are a few front runners. Rupert Murdoch and Oprah Winfrey come to mind (at least Oprah makes people laugh), but I really don’t know the field well enough to make a prediction. Sorry!

  21. Sam
    January 27th, 2011 at 16:00 | #21

    I’m not totally sure about this John. Will aggregate demand increase one-to-one with the flood damage bill? There is a wealth effect too, going in the opposite direction. A lot of people have been made poorer by the floods, and will consequently cut back on spending. Perhaps in order to be policy neutral the flood should be paid for partly by a levy, and partly by a delay in the return-to-surplus schedule.

  22. Salient Green
    January 27th, 2011 at 16:47 | #22

    may #10, I feel at this time that my donation would be like giving money to an addict. It would merely be spent on more of the bad habit, living on a flood plain. When donations are called for to assist people to re-establish on higher ground I will be quite generous considering my low income, which is well below the level required to pay the levy by the way.

  23. Chris Warren
    January 27th, 2011 at 17:04 | #23


    So if a European soldier complained of strain injury from having to behead so many Boxer’s would you rush in (violins playing in the background) to give aid to the poor suffering blood-soaked soldier?

    Or does their “ideological or political position” actually play a part in determining moral peoples actual response.

    Would you rush in, all gushing, to give “help because help is needed”, to the Americans suffering blisters in Vietnam because they had to march so far to burn the villages?

  24. Tim Macknay
    January 27th, 2011 at 17:41 | #24

    Let’s see:

    – Charlie thinks building dams can control the rain (did the failure to build those dams also cause the preceding drought, Charlie?);
    – BilB will refuse to help flood victims to rebuild on “principle” because some official or other won’t say the magic words “climate change”; and
    – Chris Warren thinks that living somewhere that gets flooded every thirty years or so is the moral equivalent of imperialist genocide.

    Have you all gone mad??

  25. BilB
    January 27th, 2011 at 18:01 | #25

    No, Tim Macnay, not because “some official” refuses, but because our total government refuses to state their position on these issues, AND because we have already paid the money to cover this disaster. The money is in the wrong bank account, a simple email (strongly worded) can make the entire 5 billion dollars available immediately.

    The madness is else where.

  26. Tim Macknay
    January 27th, 2011 at 18:16 | #26

    BilB, I’m afraid that choosing this particular issue as a basis for “making a stand” on the government’s weak climate change policy by comes strikes me as rather silly posturing. And I’m sure you don’t seriously believe that the electricity industry will hand over $5 billion in response to a “strongly worded email”. So why say it?

  27. Alice
    January 27th, 2011 at 19:01 | #27

    Ikono – you know damn well the “future fund” has been set aside for the undunded supeannuation retirement benefits of a clutch of commonwealth public servants. Its for their future – not the rest of us. Dont be so insubordinate!

  28. BilB
    January 27th, 2011 at 19:17 | #28

    Tim Maknay, I am dead serious. The electricity industry is duty bound to return a proportion of the monies collected under the pretext of funding the now defunct CPRS.

    Before you comment again I advise you to go back and read the press releases, news reports, IPART statements, screen grabs from electricity distributor websites, and the CPRS legislation.

  29. melanie
    January 27th, 2011 at 19:42 | #29

    I think the flood levy is infinitely preferable to relying on charitable donations (given that state governments are only kept afloat by casinos). The announced levy will not apply to people earning less than $50k and the highest contribution will be a princely $260 (if my radio had it right). But a tax is preferable to voluntary donations where many will free ride in a situation that all of us contributed to (in whatever minor fashion).

    Some people are calling for a permanent ‘natural disaster recovery levy’. This idea, IMHO, is really, really bad. What is called for is a carbon tax which could both provide a sinking fund for infrastructure recovery and an incentive to carbon polluters to reduce their pollution. It wouldn’t stop the disasters coming (as the cause is global not local), but it would provide better incentives.

  30. melanie
    January 27th, 2011 at 20:04 | #30

    @Ken Lovell What is the difference between a surplus and an increase in revenue (deficit reduction) generated by a tax (or for that matter) an increase in borrowing?

  31. Ikonoclast
    January 27th, 2011 at 20:40 | #31


    According to the website


    “The Australian Government established the Building Australia Fund to fund critical infrastructure in the transport, communications, water and energy sectors of the economy. The Nation-building Funds Act 2008 was enacted on 18 December 2008.”

    I can think of nothing more critical currently than flood recovery. However, the fund balance I quoted may be committed already. I do not know the facts of that.

    More broadly, this business of where the money is coming from is a bit of a shell game. The government can raise or borrow the money in many ways.

    “Hypothecation, in the context of taxation, is the dedication of the revenue of a specific tax for a specific expenditure purpose. (The original definition of hypothecation is a pledging of assets: the expected revenue from the tax in question is pledged to a particular cause).” – Wikipedia.

    For me, “to hypothecate a tax” like this always carries the connotation that it is merely hypothetical that the money actually raised goes to the specific use. The money raised can too much or too little for the actual use. And in any case, revenue is one big bucket from which all costs are paid. An hypothecated tax is just a political move and as I said part of shell game where the government indulges in a series of pretences about where money is coming from and where it is going to.

    For example, the government could raise x billions from the levy and claim it was going towards flood reconstruction but effectively use it to increase the Building Australia fund by the same amount whilst allowing bracket creep or even flood reconstruction under-spending over time to cover the gap.

  32. Charlie
    January 27th, 2011 at 23:03 | #32

    To Tim Macknay et al who say “- Charlie thinks building dams can control the rain (did the failure to build those dams also cause the preceding drought, Charlie?);”

    Obviously Tim is a Queenslander, as he exhibits the endemic stupidity of the majority of them for supporting over 20 years the ALP-Green coalition that rejects dams on principle, even thougn they produce green electricity, store water from good rainfall years for use in dry years and are thereby empty enough when the rains return to store the flood. That simple message goes back to Joseph in Egypt, but is beyond the mental capacity of most Australian academics, typified as they are both by Jamie Pittock of the ANU who is probably the source of Tim’s inane comment and by the goons of the CSIRO and AAS and their ludicrous reports on climate change (predicting perpetual droughts).

    Andrew Bolt in yesterday’s Herald Sun “It’s raining dam taxes” splendidly documents the insanity on dams of the majority of the otherwise good folk of this country.

  33. Donald Oats
    January 27th, 2011 at 23:22 | #33

    I’m in a snakey mood tonight: there is a form of argument used to justify not putting in place climate change mitigation/reduction measures, and it is suitable here as well :-0

    If we build dams it will only encourage people to build on the flood plains because they reckon they are now protected against flood. Therefore, don’t build dams.

    I think I’ve got it correct; dams are evil because they just encourage bad behaviour!

    Boy. I’ve heard that style of argument used against any form of AGW reduction or mitigation several times before. Often written in the newspapers too.

    Anyway, I am quite ambivalent concerning levies. Not on economic grounds but more on political grounds, because they are so easy to attack in today’s “government lite” dominating view. Abbott was running around with the line approx. “mates help each other; they don’t tax each other”. It is an effective line with an emotive impact; countering that requires a level of intellectual argument that is too detailed, so that the listener takes on board the pithy appeal to both Australiana (ie mateship), and liberty (ie freedom from other’s actions, ie taxing me). The Labor government have amply demonstrated that they lack an awareness of this: their manner of justification of a tax is to augment it with spending cuts by deleting programs which were highly questionable in the first place. They should have been deleted irrespective of floods.

  34. January 28th, 2011 at 00:02 | #34

    I haven’t read all the comments yet, so not sure if this thought has been floated. IMO the government has now missed two opportunities. The mining supertax would have been much better if it had been designed as or linked with a carbon tax. Now this levy as a once off would have been another opportunity to link with a carbon tax.

    The flood levy is not a bad idea as a once off. I have no view on whether borrowing the whole amount would be a better option or not. I do believe we’ll be needing funding like this much more often with climate change. So I hope that when the carbon tax is introduced it will be in such a way that it will involve rebuilding infrastructure to better cope with climate extremes as well as provide incentives to address the root cause of these extremes of weather.

    Floods, droughts, fires are all getting much worse as this century progresses – and in a few short decades, rising sea levels will also come into play. Governments will need to develop longer term strategies so we can continue to respond to climate disasters as quickly, as will be needed in the future.

    As for not building on flood plains, that is fair enough in cities and towns that have nearby hills. (I’ve always checked and avoided buying property at known risk of floods.) Most development in Australia is around rivers, which give access to water and flow through plains that flood. (This is why many towns build levees – to protect against flooding of settled areas.) You can’t grow much on hill tops, and when you clear hills for agricultural development, there tends to be lots of soil erosion. Not a good idea. This flood levy is for infrastructure in any case (road, rail, ports, airports etc – not for houses, AFAIK).

  35. BilB
    January 28th, 2011 at 04:41 | #35

    Julia Gillard’s flick reaction cutting green programmes demonstrates the she has not got a clue. I cannot believe how wrong I was in supporting her rise. If it weren’t for the NBN I would be voting for the sociopath at the next election. I think that as well as voting Green I am going to have to campaign as well.

  36. Christopher Dobbie
    January 28th, 2011 at 09:00 | #36

    I’m disappointed with numerous deficiencies regarding this last flood. Houses built in known flood zones not been able to withstand inundation without serious structural damage, i.e plasterboard use for one. Secondly, lack of co-ordination and community knowledge about the level of the flood waters to come, the Monday prior was a fine example, far too little urgency to secure capital. Lastly, I can’t talk about the other two commercial stations but I had the misfortune to watch channel nine’s coverage Tuesday night and was appalled at the blithe lack of concern for the effects that this flood would bring. All that I got was the horror that had already occurred but nothing that would have indicated action was needed if I happened to live in an area to be affected.

    On the inverse, the community’s response following this catastrophe has been encouraging to say the lest.

  37. derrida derider
    January 28th, 2011 at 11:31 | #37

    I reckon the fed’s bill will come to a lot less than $5.6b. Both they and the potential grant recipients have every incentive to inflate their estimates at the moment.

    This is a clever way to raise heaps of money with minimum political kickback in order to deliver on their foolish promise of a 2012-13 surplus. You’ll find in a year or two that – suprise, surprise – “Fortunately it wasn’t quite as bad as we thought. We didn’t need quite so much money, but it’s not practical to give it back now. So let’s put the leftovers into Consolidated Revenue”.

    It would have been far more politically difficult to have raise this much with a horror Budget. Mind you, I agree with John that overall the package is a good way to raise the dough.

  38. Tim Macknay
    January 28th, 2011 at 12:15 | #38

    BilB, presumably you are talking about electricity price increases that were predicated on the introduction of the CPRS. If it is true that the electricity providers have collected extra money from their customers under false pretences, then they owe that money to their customers, not the Federal government. And it would still take more than a ‘strongly worded email’ to recover it.
    In any case, I have no particular brief for this levy – not being an economist, I have no particular opinion on whether or not it is the most appropriate way to fund the flood recovery. I just thought (and still think) refusal to pay a flood relief levy of a few hundred dollars is a quixotic way to protest the government’s climate change policies.

    I do agree though (sadly) that the govt’s readiness to slash the nearest climate change programme in preference to virtually any other budget item is more evidence that its commitment to climate change action is paper thin.

    It seems Charlie’s spittle-flecked response has answered my initial question in the affirmative. 🙂

  39. Charlie
    January 28th, 2011 at 14:08 | #39

    Tim Macknay: I see you are still unable to see why those of us who did not support the Queensland government’s refusal to build dams since 1990, and its inability to manage the one big one it inherited, do not feel happy about compensating those whose losses are a result of their own sins of omission and ignorance. I had some involvement with big dam projects in Africa. Since the Aswan dam was built the population of Egypt has more than doubled, happily living in the Nile’s flood plains, and producing almost all they eat from those plains (thanks to the pari passu doubling of crop output enabled by Aswan). Naturally the Greens of the 1960s and 1970s were violently opposed to it and as late as the 1980s were still demanding that Aswan be blown up (see Cheysson in Paris Match “Aswan – une disastre”).

  40. may
    January 28th, 2011 at 14:18 | #40


    a political feast dished up on a subject normally not on the oppositions’agenda.

    revved up by commercial interests and the ABC.

    spurious why-should-i arguments that normally are ignored.

    given a very loud voice.

    i commented along these lines on the ABC.

    still waiting for the comment to come up.

    Tim..i thought i was the only one to notice.

    it’s the little white bits in the corner of the mouth.

    a dead give away.

    plus(of course )the Voice OF Authority.

  41. may
    January 28th, 2011 at 14:23 | #41


    don’t Australian wheat imports help just a little bit.

  42. BilB
    January 28th, 2011 at 15:10 | #42

    Tim M

    Just for the sake of clarity, What happened was this

    The government announced theCPRS which would require CO2 emitters to buy the rights to emit from the government. This would require them to pass on that cost to the power distributors. IPART (the price advisory body) calculated how much money the electricity industry would need to have in circulation to enable the CPRS to work and directed the electricity distributors to raise electricity prices by 75% over a 3 year period to have the process fully charged by the time of its implementation in 2013. Remember that low incomes were to be fully compensated for the increase in electricty prices.

    Tony Abbott failed the legislation.

    By this time electricty prices had risen 25%. This increase was made up of various proportioned factors. Some for industry scheduled increases, the rest to cover a proportion of the CPRS requirement for carbon credit purchases, and remember this was to largely be reimbursed to low income families.

    Without the CPRS legislation enacted the mechanism requiring power generators to buy carbon credits was not in place so there was no requirement for them to increase their prices other than from general cost increases.

    So the additional moines collected under the advised authority of IPART has been accumulating in the books of the electricity distributors.

    And we are all paying higher electricity prices without the promised compensation in the case of the lower incomed families, and with out the benefit of knowing that we are reducing our CO2 emissions in the case of every one else.

    The windfall amount will have retained in the hands of the electricity distributors will have accumulated to, my guess, 12 billion dollars.

    The only other way that I can compare this situation is to imagine that in preparation for the GST prices were put up by 25% but then the government forgot about it leaving the retailers to collect 25% extra revenue thereafter and for no cost to them selves.

    And most astonishingly of all is that everyone is paying the increase and not asking why!!!?

  43. Tim Macknay
    January 28th, 2011 at 16:28 | #43

    Tim Macknay: I see you are still unable to see why those of us who did not support the Queensland government’s refusal to build dams since 1990, and its inability to manage the one big one it inherited, do not feel happy about compensating those whose losses are a result of their own sins of omission and ignorance.

    Charlie, you would be slightly more convincing if it weren’t for the fact that the Queensland government actually has approved and constructed dams in the last 20 years (for example, Clarendon Dam, Wyaralong Dam), and has approved the upgrade of several others (e.g. Hinze Dam, Lake Manchester Dam). The only dam the Goss government specifically didn’t approve was the Wolfdene dam. If that dam had been built it might well have eased the recent drought. But a claim that it would have “stopped the flood” is an absurdity.

    And most astonishingly of all is that everyone is paying the increase and not asking why!!!?

    It is rather astonishing BilB. However my point remains: on your explanation, there is no money being held by electricity utilities that can simply be appropriated by government for flood relief. All you have is an unfairness argument, and even then, it is the electricity buyers, rather than the Queensland flood victims, who would be making that argument.

  44. Jason
    January 28th, 2011 at 20:21 | #44

    Not obvious that gdp will go up as a result of rebuilding? Are you predicting a sudden rebuilding pride induced boost in productivity? Previously engagedvresources just diverted seems most likely.

  45. BilB
    January 28th, 2011 at 20:47 | #45

    Tim M,

    I think that you are missing the connection between an industry that burns millions of tonnes of coal, releasing millions more tonnes of CO2, Global Warming inducing CO2, record breaking state devastating flood causing Global Warming. Are you seeing the connection here? Yet? This is an industry that has collected a windfall profit due to political mismanagement in an effort to correct the damage caused by this industries activities, damage which now flows on to causing devastating fires, record breaking floods, and we don’t what next.

    So how can this be resolved? The principal industries causing this damage can be levied to recover the damage cost caused by their commercial activities. The oil industry can also be contributing to this as well. This can be considered a “pre carbon tax” that actually does some good.

    It was altogether too easy to reach into the public pocket without thinking through the real issues here. The public is spontaneously giving to assist the victims of this tradgedy. It will be nice to see the electricity industry doing the same.

  46. January 29th, 2011 at 00:38 | #46


    It is worth noting that the Cash for Clunkers scheme was “funded” by raiding solar programs in the first place. So unless I’m mistaken, adding in today’s cuts, the net effect is roughly a billion dollars cut or deferred from various solar schemes in the last 6 months.

    Locally Cross River Rail has bitten the dust, wonder how they’ll deal with the Merivale bridge hitting full capacity in 2016 now?

  47. Ikonoclast
    January 29th, 2011 at 10:04 | #47

    Gillard’s recently announced policies illustrate the complete intellectual and imaginative poverty of her Labor government. I really can’t find polite words to describe how bad her government is. (Abbott would be as bad or worse by the way.)

    The Gillard government is either stupid, venal, a purchased servant of the fossil fuel industry or some combination of all three.

    It is clear now that their policies are “adopted” solely to win elections. They do not result from any analysis of economic, social or environmental concerns. They are not part of any coherent strategy. They are never adhered to in any disciplined way. Chopping and changing policies (like solar energy policy) is worse than useless. It is damaging Australia and causing grave delays on the criticial issues.

  48. BilB
    January 29th, 2011 at 10:30 | #48

    Thanks for that concisely defined assessment, Ikonoclast. That is pretty much the way I see it as well. I’d like to not believe this, but there is little scope for a kinder interpretation. Gillard is milking the “Aww, poor flood victims” psychie for all that it is worth, and I can’t think of much that one could do that is lower.

  49. Alan
    January 29th, 2011 at 10:43 | #49

    I do not discount either stupidity or venality, although venality in the sense of looking for a nice job from the big end of town when you leave politics rather than traditional corruption. The other great problem is intellectual isolation. Getting anywhere in the ALP takes so much time and energy that its hard to imagine the top leadership ever reading a book or encountering a new idea. The prime minister’s pre-Christmas interview with Kerry O’Brien on her vision for Australia was painful to watch.

  50. January 29th, 2011 at 14:12 | #50

    Given all macroeconomic measurements are on the decline Prof. Quiggin, I’m surprised to see you and a small number of other Australian economists Christopher Joye, Scott Steel (Pollytics) support this levy rather than a slightly larger deficit. You all seem to be supporting it on economic grounds which I can’t see any basis for.

    On political grounds I can acknowledge the basis for the levy as erroneous as the logic is. I understand and acknowledge the political realities.

    The Independent Member for Lyne Rob Oakeshott has floated the possibility of Infrastructure bonds for discussion to pay for the floods rather than the levy. Off the top of my head this idea seems to have merit.

  51. Chris Warren
    January 29th, 2011 at 15:11 | #51


    Would a deficit harm lower income earners more than a levy, given that low incomes pay no, or low, levy?

    Presumably a levy does not increase borrowings. It does not seem reasonable for governments to increase deficit to rectify natural disasters.

    A levy is a discrete, transparent – one-off cost and can be quantified. Deficits hang round seemingly forever and are hard to quantify in the long run.

  52. January 29th, 2011 at 15:27 | #52

    @Chris Warren

    A levy is an imposition on the taxpayer, a deficit is not (despite neoclassical theory). Deficits are not inherently bad.


  53. may
    January 29th, 2011 at 16:00 | #53

    well,the storm in a teacup summary seems to be people with not much money don’t mind paying around $1 a week

    and people with quite a bit more are really pissed off about paying aroung $7(?) a week.

    all sorts of carry on from the pissed off about why,but nothing really coherent except they don’t like the current government.

    in this weeks new scientist there is and article you possibly might be interested in to do with the way money flows through an economy compared to the way energy flows through

  54. may
    January 29th, 2011 at 16:02 | #54



    there is an article.

  55. Chris Warren
    January 29th, 2011 at 16:44 | #55


    How is a levy an imposition on low income people if they are exempt from it?

    A levy is mainly an imposition on people who pay it, although there may be vague second effects.

    No one has said deficits are inherently bad – where did this come from?

  56. Donald Oats
    January 29th, 2011 at 16:50 | #56

    All I get out of this is “Tax Cuts For The Rich!” is OK and levies are not. Go figure. Perhaps rich people give at the office.

  57. Jill Rush
    January 29th, 2011 at 17:17 | #57

    Ah Donald you may be on to something here. Donations as tax deductions or salary sacrifice – levy an additional payment without the same tax benefits. Personally I can afford to give up the cup of coffee per week that it will cost – probably help my health too.

  58. Alice
    January 29th, 2011 at 17:22 | #58

    @Donald Oats
    Yeah right Don…its all party of the current neoliberal pervasive and destructive policies…tax cuts are good for the rich becuase it will trickle down (and thats proved an abject failure as their tax cuts got gambled away and diverted to tax havens and the only way to control the rich from ripping the rest of us off with tax avoidance is to control their capital flows country to country and tax them more…BUT we are now dealing with the errors of past policies…sigh).

    Levies?? Levy the hell out of the rich. They have had their day in the sun at everyone else’s expense. Inequality of income is all that has resulted. from this. Its inequality causing the mess we are in now (people with inadequate super, the young not getting a fair go of start in life, inadequate infrastructure from which business can actually grow and get enough profits, governments on the take instead of on the make…need I go on???

    I dont know where we vote to get the change which is needed urgently (must I give up on the idea of a civil society that works well?). What I do know is the media wont support change and if it comes down to politics which of course it does, both major parties are in the back deep pockets of even more inequality.

    I dont see a decent person amongst the candidates – I see trained seals. Sad but true, from my view.

  59. Alice
    January 29th, 2011 at 18:31 | #59

    Senexx has a damn good point – why are we supporting a levy instead of a deficit?

  60. Alice
    January 29th, 2011 at 18:34 | #60

    And how to pay for it? Isnt it called the third of my income that goes each week paying tax? (oh and the much less that goes each week if I was richer?)

  61. Chris Warren
    January 29th, 2011 at 21:41 | #61


    Anyone paying a third of their income in tax can afford to pay a third of their income as tax.

    According to the current tax scales:


    this 33% tax rate cuts-in at a income of $3,900 per week, or $200,000 per year. Tax payable is: $1,306.00 pw.

    People on 33% tax rate really should not worry about becoming richer.

    We live under welfare state capitalism, subsidised by third world countries until they catch up that is.

    The amount of tax is trivial, compared to what it will have to be in the future.

    A levy is a tax and can be designed so that it only impacts on incomes at different rates.

  62. Alice
    January 30th, 2011 at 07:07 | #62

    @Chris Warren
    Then Chris – Ive made an error of understatement clearly and wish I was paying only a third of my income in tax.

  63. Chris Warren
    January 30th, 2011 at 07:35 | #63


    If you add PAYE, GST, excise, rates, stamp duty and motor taxes, the general “tax” revenue is a higher percentage of earnings.

  64. Donald Oats
    January 30th, 2011 at 09:16 | #64

    I wish to point out that there is a GetUp! campaign under way to push for a separate, permanent climate disaster fund (I hope the link works – they haven’t added this to the GetUp! site’s “Current Campaigns” tab yet), as described in their public letter, the first part of which is:

    48 hours ago, the Government announced they want to pay for the climate disasters of today by killing the renewable energy projects of tomorrow.
    Climate change means more extreme weather events1, so it makes sense to establish a permanent Climate Disaster Fund — not just to respond to one off events like the recent floods.
    There’s a simple solution to fund reconstruction after extreme weather events, while also reducing pollution and supporting renewable energy. The Government must establish a permanent Climate Disaster Fund, paid for by ending the billions of dollars they’re handing out to subsidise the use of fossil fuels2, most of which ends up in the pockets of Australia’s biggest polluters.

    Annabel Crabb reminds readers of the cost of this substantial rollback of climate policy:

    News of a freakish reversal of direction in Australian climate policy is not, in itself, particularly stunning any more; this policy area is prone to more rethinks than Lady Gaga’s day wardrobe.
    But what Julia Gillard did at yesterday’s National Press Club address is nonetheless pretty staggering.
    Her cool public slaughter of about $1.3 billion in clean energy incentives could be described in several different ways.
    Rudd-era greenies might call it “rat-f***ing.”
    Ms Gillard herself would call it “Seeing what needs to be done, and doing it.”
    I’d call it: “Putting It All On Black”.

    I think Ms Crabb’s characterisation, and her Rudd-era one as well, are on the money. Unfortunately. Humans just don’t seem ready to help themselves at the global level, instead preferring to let the likes of Bolt and co to wreck the public dialogue on the AGW issue, and letting a significant but not major sector of our economy dictate the terms of the debate.

    Can anyone offer some clarity on what is the new current position of Labor on the AGW / “Climate Change” environmental problem? Is it that doing nothing (and failing) is a safer policy than doing something (and probably failing)? Is that what this is all about?

  65. January 30th, 2011 at 11:28 | #65

    @Chris Warren

    I didn’t say it was an imposition on the low income people. A levy which is just another name for a type of tax is an imposition on the taxpayer regardless of which taxpayers pay it.

  66. January 30th, 2011 at 11:28 | #66


    Thank you Alice.

    To both, My point earlier and still is that I understand the political necessities of the levy and the politics that go with it. On those grounds the levy is quite reasonable.

    However on economic grounds with most economic schools of thought, if not all, it is unjustified. Like I said though I recognise the political realities.

    Kind Regards to you both,


  67. Chris Warren
    January 30th, 2011 at 13:47 | #67


    I’m a bit confused.

    If you say: “A levy is an imposition on the taxpayer” surely this includes all taxpayers?????

    So it would seem that, unavoidably, you have covered whether or not a levy is an imposition on low income taxpayers.

    If not – can you please indicate how you exempted these people?

    Anyway, if the levy is paid only by the rich, then presumably they may manipulate political-economic levers so that even this type of tax becomes an imposition on all taxpayers (even those exempted from payment).

    However any claim that a means-based levy will necessarily do this, is speculative and needs to be explained. But such an explanation also needs to compare whatever burden falls on tax-exempt people through taxing the rich, compared to the burden that falls on low income through and alternative policy – increased deficit which must be funded and introduces additional impetus for inflation. Though there may be this second effect – a means based levy may still be preferable.

    Taxing the rich has minimal detriment on the poor. Collecting the same revenue through deficits increases the gap between rich and poor and between labour and capital – particularly if Tory regimes like Howard’s restrict wage movements (but let profits fly as high as they can). Deficits (think ‘debts’) disrupt demand conditions. A levy only changes the distribution of demand.

    Our economy is so junked-up with per-capita debt that no economic argument exists that we need more.

  68. Alice
    January 30th, 2011 at 15:26 | #68

    @Chris Warren
    says “particularly if Tory regimes like Howard’s restrict wage movements (but let profits fly as high as they can). ”

    One legacy of this is that firms like “Toys R Us” and other mainly large conglomerate chains have been getting away with ripping casual kid labour off for years here in Australia but no-one talks about the burden of their lost income to the profit centres of employers like Toys R Us.

    So glad the newspaper informs us in a tiny little article today that Toys R Us was forced by Fair Work Australia to repay and send a letter of apology to all current and past employees it had been ripping off and repay them the one million dollars it misappropriated as well as cough up 300K for staff training.

    Good one. Tip of the iceberg though. Im not in the mood to be generous with the levy and should it be progressive? Yes. And should the miners pay a bigger flood levy? Yes – after hearing they now think the NSW miners have cracked the catchment bedrock to Wonora and its leaking water.

    Just another reason that the despicable Kenneally (yes it was her as planning minister that gave them permission to long wall mine there) NSW State Labor should be thrown out at the election. Evil creatures who would do anything grubby for a donation.

    Yet why would the young of this country vote back in the architects of workchoices and the architects of now much higher education costs?

    Lets hope its a young green swing. It really should be.

  69. Tim Macknay
    January 31st, 2011 at 12:34 | #69

    I think that you are missing the connection between an industry that burns millions of tonnes of coal, releasing millions more tonnes of CO2, Global Warming inducing CO2, record breaking state devastating flood causing Global Warming.

    Nope. Not missing the connection at all. Just questioning your claim that there is some money the electricity industry is holding that the government can retrieve with nothing more than a strongly worded email. I take it you now acknowledge that is not the case.

  70. BilB
    January 31st, 2011 at 15:51 | #70

    If you have read the history of the price increases then you will know that yes there is money there. The electricity distributors are in the process of buying up 5 billion dollars of NSW electricity industry assets with their windfall profit, for example.

    The other method is to levy the electricity industry to clean up the mess that CO2 emissions are causing. Environmental restitution. Several serves of cleanups and they might get the message that it is no longer OK to flood the atmosphere with CO2, relatively speaking.

  71. February 3rd, 2011 at 20:37 | #71

    @Chris Warren

    You’re attempting to read too much into it. It is not about the levy and the levy’s affect on people. It is the wrong economic tool/instrument to use.

    If you click my name at the bottom of each of my previous posts, you may begin to understand.

    It is for these reasons that I cannot understand the support Prof. Quiggin, Christopher Joye and others give the levy. It is economically inappropriate.

  72. Chris Warren
    February 3rd, 2011 at 21:52 | #72


    I can only repeat what I have said. A levy will not hurt low income people as much as a deficit. As I have noted – it will necessarily be an imposition on all taxpayers.

    For me, the affect on people is a key determinant of public policy within a representative democracy.

    Once society accepts a need to fund reconstruction of Queensland (which is debatable) a levy is a better economic tool to use than increasing the deficit.

    It is economically appropriate and socially preferable.

  73. Chris Warren
    February 3rd, 2011 at 21:55 | #73

    Just a slight typo …

    Should be …

    “As I have noted – it will not be an imposition on all taxpayers.”

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