Flood and Cyclone Recovery Measures

On 27 January 2011, Prime Minister Julia Gillard announced the Government’s budgetary response to the task of rebuilding flood-affected areas in Queensland, Victoria and New South Wales.

A copy of the Prime Minister’s announcement is available here.
A copy of the Prime Minister’s speech to the National Press Club is available here.
The Government’s current estimate is that the Flood Recovery Measures will cost the Commonwealth Budget $5.6 billion. However, the Prime Minister has cautioned that this estimate may rise.
The Government will pay for the Flood Recovery Measures through:
  • $2.8 billion in spending cuts;
  • $1 billion in delaying some infrastructure projects; and
  • $1.8 billion raised through a progressive income tax levy.
This is consistent with the Government’s fiscal strategy to bring the Budget back into surplus in 2012-13. The Prime Minister explained the rationale for maintaining the Government’s fiscal strategy, stating:
         “With our growing economy and rising national income, we can pay for rebuilding now.  And if we can, we should.  We should not leave the task of finding the money until future years.” 
The Prime Minister also announced measures to address skill and labour shortages caused by overlaying the Flood Recovery Measures on an economy already approaching full employment. These include:
  •  Fast tracking access to section 457 visas for critical skill needs; and
  • An increase in the relocation allowance paid to job-seekers and employers.
On 28 January 2011, the Treasurer Wayne Swan in partnership with the Queensland Government announced a $10 million Tourism Industry Support Package. This package will ensure that local and international tourists are aware that many of Queensland’s biggest tourist attractions have not been affected by the floods. A copy of the Treasurer’s press release is available here.
Following Cyclone Yasi, the government announced the extension of disaster relief to the affected areas in North and Far North Queensland. On 7 February 2011, Prime Minister Gillard announced the appointment of Mr Brad Orgill (head of the Building the Education Revolution Taskforce) and Mrs Glenys Beauchamp (Secretary to the Department of Regional Australian, Regional Development and Local Governmnet) to the Board of the Queensland Reconstruction Authority. The Prime Minister also announced a new Reconstruction Inspectorate, chaired by Former Federal Finance Minister John Fahey, to provide scrutiny and accountability for all reconstruction projects. Other members of the Inspectorate include Mr Martin Albrecht (former managing director of Theiss) and Mr Matt Sheerin (from Deloitte).
For information on the Queensland Reconstruction Authority Board and the Queensland Commission of Inquiry, see Hawker Britton’s Queensland Flood Recovery Brief, which can be found here.
Where the funding is going
The majority of the $5.6 billion raised will go to essential infrastructure reconstruction costs.  $2 billion will be given to Queensland quickly to ensure that rebuilding can start as soon as possible.
Estimates of the total cost of reconstruction in Queensland are $5 billion, of which the Federal government will contribute $3.9 billion (75 per cent).
There are also infrastructure costs associated with flooding in other States.
The rest of the funding will be allocated in line with standard natural disaster recovery procedures, including:
  • $600 million for the Australian Government Disaster Recovery Payment; and
  • $120 million for the Disaster Income Recovery Subsidy,
both of which are paid to affected individuals.
Spending Cuts
The Government has announced $2.8 billion in savings as the principal contribution to meeting the cost of the Flood Recovery Measures. These include:
  • Not proceeding with the Cleaner Car Rebate Scheme;
  • Abolishing the Green Car Innovation Fund;
  • Reducing and deferring spending on the Carbon Capture and Storage Flagships and Solar Flagships programs and the Global Carbon Capture and Storage Institute;
  • Abolishing the Capital Development Pool from 1 January 2012. No current projects will be affected;
  • Discontinuing funding for the Australian Learning and Teaching Council;
  • Reducing the National Rent Affordability Scheme dwelling target from 50,000 to 35,000;
  • Redirecting $350 million of the $800 million funds from the Priority Regional Infrastructure Program and $100 million from the Building Better Regional Cities Program to support flood recovery efforts in regional Australia;
  • Capping annual claims under the Liquefied Petroleum Gas (LPG) Vehicle Scheme;
  • Capping funding for the Renewable Energy Bonus Scheme – Solar Hot Water Rebate;
  • Not proceeding with Round 2 of the Green Start Program;
  • Capping funding for the Solar Homes and Communities Plan; and
  • Withdrawing funding to the O-Bahn City Access project.
Further details on each measure can be found in Attachment 2 of the Prime Minister’s announcement.
The Prime Minister particularly noted that the decision to cut funding to Climate Change programs would be mitigated by the Government’s plans to introduce a price on carbon. For more details see Hawker Britton’s Climate Change Brief, which can be found here.
Delaying Infrastructure Projects
The Government will delay spending on infrastructure projects worth $1 billion.
Following agreement with the Queensland Government, the following 6 projects worth $325 million have been re-prioritised:
  • Duplication of the highway from Vantassel Street to Flinders Highway;
  • Alternate project arising from Herbert River floodplain study;
  • Realign the highway from Sandy Corner to Collinsons Lagoon;
  • Intersection upgrades along the Burdekin Road;
  • Upgrade of highway between Cabbage Tree Creek to Carman Road and Back Creek Range; and
  • Upgrade of highway between Caboolture to Caloundra.
In NSW and Victoria, the Government has worked with the State Governments and identified $620 million worth of projects to be re-profiled. In Victoria $520 million will be re-profiled on the Regional Rail Link and the Princes Highway East (Traralgon to Sale) projects. In NSW, $100 million from the Northern Sydney Freight Line project will be re-profiled to better reflect construction milestones. Planning will continue on all of these projects and all three will be delivered.

The only project that will not proceed is the O-Bahn project in South Australia, which will save $56 million.

The Prime Minister noted that the re-prioritisation of these projects would also “free up skilled workers at a time of labour shortages around the country.”
Progressive Levy
The Government’s proposed levy will apply to individual taxpayers in the 2011-12 financial year.
No levy will apply to low-income earners on less than $50,000, or to the first $50,000 of a person’s income.
The rate will be 0.5% for income between $50,001 and $100,000, and 1% on income in excess of $100,000.
The levy will be collected through the tax system using the existing Pay As You Go (PAYG) system.
Those affected by the flooding or the cyclone who have received an Australian Government Disaster Recovery Payment will be exempt from the levy.  Employees will be able to provide a form to their employers to claim the exemption up front.
On 11 February 2011, the House of Representatives Economics Committee (more information can be found here) announced an inquiry into the flood levy legislation. The Committee will investigate the adequacy of the proposed levy in achieving its objectives and will attempt to identify any unintended consequences. As part of the inquiry, the Committee will conduct a public hearing on 16 February 2011. Further details can be found here. The Committee will attempt to report on its findings as soon as possible in order to facilitate scrutiny and consideration by the House of Representatives.


Addressing Skill and Labour Shortages
The Government will introduce two measures to address critical skill and labour shortages.
The Government will fast-track processing of ‘decision-ready’ employer-sponsored temporary visas (457 visas) for employers involved in Queensland flood reconstruction work that are unable to source skilled labour locally.
The Government will also provide an additional $14.6 million to double the capacity of the Connecting People with Jobs Relocation Assistance Pilot program (from 2,000 to 4,000 people). A primary focus of the program will be to provide assistance to eligible unemployed Australians (and to their new employers) to relocate to Queensland to take up employment opportunities in flood affected areas.
More details on these programs can be found in Attachment 5 of the Prime Minister’s announcement.
Tourism Industry Support Package
The Federal Government and the Queensland Government will provide $5 million each to fund a domestic marketing campaign informing Australians that Queensland’s most iconic destinations, including Cairns, Port Douglas, the Whitsundays, Townsville, Mackay, the Sunshine Coast, the Gold Coast and Fraser Coast have not been affected by the floods.
The Queensland tourism industry brought over $9 billion to its economy last year, and the state’s Treasurer Andrew Fraser emphasised the need to take action now in order to address the drop-off in bookings which is being attributed to the perception that the entire state is flooded.
Implementation of the funding measures will be overseen by a joint body including Tourism Queensland, the Queensland Department of Employment, Economic Development and Innovation, the Commonwealth Department of Resources, Energy and Tourism, and Tourism Australia.