Monday, January 24, 2011

Expect a temporary tax hike

Here's Swan talking one up yesterday.

(The whole idea is stupid of course, while the economy is depressed)

"There is no doubt the recent floods will rank as one of the most costly natural disasters in our history – with the economic toll surpassing past tragedies like the Victorian bushfires and Cyclone Tracy. Of course we’ve also heard a lot of recent comparisons to the 1974 floods, and while we were all relieved when water levels in Brisbane didn’t hit the same peaks of a generation ago, the truth is the impact of these floods will strike both the Queensland and national economy a lot harder.

Part of this reflects the fact that while the 1974 flood mainly affected Brisbane, this time around they’ve affected almost everyone in Queensland, with three-quarters of the state declared a disaster zone. And it’s not just Queensland – we’ve seen the floods wreak havoc across parts of Victoria, New South Wales and Tasmania. The physical damage and clean-up will be worse too due to the dramatic growth in the size and density of Queensland’s population, particularly in the south-east corner. Since 1974, the populations of both Brisbane and Queensland have more than doubled. Housing density has also increased given the greater significance of medium and high density housing. So while the state’s whole population in 1974 was just 2 million, more than 3.1 million people have been affected by the latest floods. At this point we already estimate some 26,000 homes have been affected by the floods in Brisbane, and about 3,000 in Ipswich. This compares to 6,700 Brisbane homes and 1,800 Ipswich homes that were affected by the floods a generation ago.

While it’s still too early to quantify the impact with any certainty at this stage, I’ll be sketching out some preliminary estimates of the economic and fiscal impact of the floods next Friday, in a speech at the CEO Institute Annual Conference in Brisbane. There’s no question that the economic impact of these floods will be enormous. Queensland’s rapid development has meant that its economic performance has a much bigger influence over our national economy. The state now contributes around 19 per cent to our national output (up from 14 per cent in 1974) and although the full impact won’t be known for some time, obviously the hit to our economy will be much larger than 1974 and much larger than other natural disasters in our memory.

One of the biggest casualties is likely to be our coal exports, with many mines shut down in big coal mining regions like the Bowen Basin, and supply chains severely hampered. While this will be partly offset by higher prices, the loss of production will be hit much harder. To give you a sense of this impact, Queensland produces around 80 per cent of coking coal in Australia. Coking coal itself contributes around 10 per cent to Australia’s exports, and coking coal exports contribute around 2 per cent to GDP. Of course we’ve also seen the devastation that the floods have caused to our crops, and the heavy impact on other industries like tourism, retail and manufacturing – especially with the disruption to the big urban centres like Brisbane.

There’s a massive task ahead to rebuild the communities, homes, businesses and infrastructure destroyed by these floods, and this rebuild effort will add to GDP again in time. This recovery will throw up a range of challenges in terms of economic capacity, which will have implications for how quickly the rebuild can be done. For consumers, we’ll also inevitably see a spike in prices at the checkout, mainly from fruit and vegetables. While this is likely to be temporary, it will no doubt take a toll on family budgets for some time.

The exact impacts of this epic disaster on our budget will be accounted for in time, but there’s no doubting the final tally will be very significant. Fiscal responsibility has always been a hallmark of this Government and the way we approach this situation will be no different. We are determined to do all that we responsibly can to throw our support behind the Queensland people through this devastating time, but at the same time we have to do the right thing by the nation’s economy. The enormous task ahead of us will require difficult spending cuts in our budget, and we’re working through all the options – including a temporary levy. We’ve seen levies used in the past to fund programs such as the gun buyback scheme, worker entitlements after the collapse of Ansett Airlines, and assistance packages for the dairy and sugar industries. It is just common sense to keep all the options on the table as we consider how the Commonwealth Government will help to rebuild Queensland, and how we will fund that."

He'll tell us more Friday.

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