Government considers special flood levy to pay damages bill

The Federal Government is considering a new tax to pay for damage bills caused by the devastating floods in Victoria and Queensland, with cost estimates now reaching into the billions of dollars.

Prime Minister Julia Gillard said on ABC last night the Government is considering the new tax – raising questions from the Coalition about whether Labor will be able to deliver a surplus as promised in 2012-13.

”There will be spending cutbacks and there may also be a levy,” Gillard said, adding there will also be ramifications for GDP growth, along with rising flood damages.

The Coalition has attacked the proposal, with leader Tony Abbott telling ABC Radio this morning the Government is simply “softening us up for another new tax… I’m opposed to unnecessary new taxes and that’s what this is”.

“There will have to be very substantial Commonwealth Government spending as part of the recovery and reconstruction phase, but there’s a right way and a wrong way to find that money.”

Instead of new taxes, Abbott says the Government should sell off Medibank Private, and even cancel the construction of the National Broadband Network altogether.

“You don’t need a levy here because there is out-of-control government spending which can easily be reined back and reprioritised.”

Opposition finance spokesman Andrew Robb also said that, “the spectre of another tax is hurting consumer confidence at a time when business is doing it tough… spending cuts are tough decisions, new taxes aren’t”.

Institute of Chartered Accountants tax counsel Yasser El-Ansary says while there is certainly a precedent for introducing a temporary levy in order to pay for a short-term plan, he also says this isn’t necessarily the best solution.

“There is a precedent for this. The most recent example would possibly be the guns levy which was introduced in the late 1990s by the Howard Government to pay for the buyback scheme.”

“But our view is that any move to increase the tax burden on a long-term, or even a short-term basis, is the wrong answer.”

Instead, El-Ansary says the government needs to identify as many spending cuts as it can and then look at delaying some programs.

“The Government needs to look at what programs they have in place, then identify whether cost savings can be made on a temporary or permanent basis. Perhaps delay expenditures in certain areas for later years.”

“The second thing the Government should be doing is accepting that a one to two year delay in the surplus is something that is appropriate in light of the circumstances where a major crisis has arisen.”

The call to abandon plans for a surplus next year have been echoed by independent MP Tony Windsor and independent senator Nick Xenophon.

The announcement of a possible new tax also comes as the Government has been setting its crosshairs on the insurance industry, with talks of broadening policies in order to accommodate coverage for flood damage.

The Insurance Council has determined most of the damage in Brisbane and Ipswich was a result of flooding, but many insurance contracts do not include flood damage provisions.

Gillard warned again last night that insurance companies must be “compassionate” when dealing with customers.

”This issue has been raised about standardising what it means to be flooded, hit by floodwaters, so that’s something that the government is considering,” she said.

Queensland treasurer Andrew Fraser has also warned that although the Insurance Council does not want to see a national insurance scheme imposed by the government, that such a proposal would go forward “unless they adequately respond to this issue”.

”The argument that its impractical or unable to be priced, or priced economically, is answered by the fact you have a major insurer, Suncorp in Queensland, already doing it”.