THE federal government has agreed to hit taxpayers with a one-off levy to help cover the cost of flood damage, at the same time warning that food prices will skyrocket during the next three months.
The Prime Minister, Julia Gillard, held meetings in Canberra yesterday with the Treasurer, Wayne Swan, the Finance Minister, Penny Wong, the Infrastructure Minister, Anthony Albanese, and officials to thrash out the details of the levy as well as budget cuts to find the billions needed to rebuild roads, railway lines and bridges in flood-affected areas.
While the levy was still being finalised late yesterday, the main option involved an increase in the 1.5 per cent Medicare levy over 12 months. It is understood other options were being canvassed.
Ms Gillard was to announce the levy next week after Mr Swan outlined the financial impact of the floods during a speech on Friday.
But it was decided to bring forward the announcement to a National Press Club address tomorrow while public sentiment over the floods was high and so the government could start selling the levy against opposition attacks.
”We’d done enough of the ‘we may have a levy’,” said a government source of the hints dropped in the past week.
The talks yesterday coincided with the release of data which showed that headline inflation was lower than expected at 2.7 per cent for the year to the end of December.
But the figures showed a sharp spike in food prices in the three months to the end of December and Mr Swan said these increases would only worsen during the March quarter as the effect of the floods was felt.
”These figures for December do not reflect the recent flooding at all,” he said of the rises, which included 15.5 per cent in fruit prices and 11.4 per cent in vegetable prices.
”I understand that many families will be doing it tough at the checkout when these price hikes flow though in the weeks and months ahead,” he said.
The shadow treasurer, Joe Hockey, said the government was avoiding the hard decisions by opting for a levy to help pay for the flood damage.
”You would have to have rocks in your head to impose a new tax on Australian families on the back of rising fruit prices and vegie prices,” he said.
Without confirming or denying the levy yesterday, Mr Swan said a bigger economic picture was at stake and ”we have to be really mature about our response to this crisis in Queensland”.
He said the federal government would have to foot the bill for 75 per cent of infrastructure damage and suggested budget cuts alone could not cover the cost without cutting core services. ”The only responsible thing to do is have all options on the table,” he said.
”I don’t think the Australian people would want us to respond by hacking in to essential expenditure in health and education, sacking teachers or nurses.”
The Medicare levy, which raises $10 billion a year, applies to single people earning more than $18,500 a year and childless couples which earn more than $30,000. At the least, people at or below these income levels would be exempt from any flood levy. But there is pressure on the government to extend the exemptions to protect more low-income earners.
A senior source said that when selling the levy it would be important to stress that it would be used only to rebuild infrastructure and not pay for disaster relief or to help people whose homes were uninsured. Other emergency funds, government and private, were earmarked for that.
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