Business anguish over budget cuts

The Federal Government will cut or delay multiple projects, funds and grants in order to cover the cost of Queensland’s $5.6 billion flood damage bill, on top of its controversial flood levy.

From July 1, the Government will put in place a new levy on salaries of 0.05% for people earning $50,000 to $100,000, while those earning over $100,000 will pay an extra 0.1%.

Flood victims will be exempt from the levy, in addition to those who earn less than $50,000.

The levy will be put in place for the 2011-12 year and will raise $1.8 billion, leaving a shortfall of around $3 billion for the recovery effort.

The government will therefore slash spending across a range of programs including $1 billion from infrastructure, $88 million from education, and more than $1 billion from environmental initiatives such as climate programs.

Prime Minister Julia Gillard will struggle to pass the levy through Parliament, with independent MPs demanding negotiations on the details of the package. The Greens have condemned the slashing of programs to combat climate but still remain open to the levy.

The Australian Council of Trade Unions has pledged support for the package, but says the government should be cautious in its plan to fast-track temporary visas for skilled workers to help rebuild Queensland.

The Australian Retailers Association says the levy will result in less discretionary income for consumers, which will do further damage to the struggling retail sector.

ARA executive director Russell Zimmerman says further expenditure cuts could have ruled out the need for a levy, which will only place continuing pressure on the capacity for consumers to inject funds into the economy via retail sales.

The Australian Chamber of Commerce and Industry agrees that the levy will hurt retailers and other small businesses.

The Business Council of Australia says the Government is “putting the cart before the horse” by proposing a levy before the full rebuilding cost is known.

“Until we get a final assessment of the rebuilding costs, we can’t gauge the impact on the Federal Budget, but the first step should be to reassess spending priorities in preference to raising new taxes,” it says.

Gillard conceded the recovery cost could increase, but has given a guarantee the levy will not be extended beyond a year.

“It’s a highly progressive system in the sense that the people who earn more pay more; 60% of taxpayers will pay less than one dollar a week,” Gillard said.