Taxpayers earning over $50,000 a year will be hit with a new levy to help pay the estimated $5.6 billion bill for flood devastation across eastern Australia this summer.
Prime Minister Julia Gillard announced the 12-month levy would apply from July 1, with those hit by the floods exempt from the new tax.
Those earning between $50,000 and $100,000 a year would pay an additional 0.5 per cent flood levy tax, while those earning over $100,000 would pay an additional 1 per cent tax.
“Anyone earning under $50,000 will not pay the levy,” Ms Gillard told the National Press Club.
“In other words it is not like the Medicare levy, which for most taxpayers applies to all their income – it is like income tax rates which apply only above certain income levels,” she said.
Ms Gillard said under the changes, those on a wage of $60,000 would pay just $1 a week more than they are presently paying since the levy kicks in only on the additional $10,000 earned above the threshold. Those paying the top tier tax would pay an additional $5 a week.
Queensland Premier Anna Bligh welcomed news the state would be receiving an upfront $2 billion cash transfer from the federal government, saying it would help begin the rebuilding work.
“When it comes to the levy, I understand that nobody wants to pay more, but the people of Queensland didn’t want this disaster either,” she told reporters in Brisbane.
Ms Bligh brushed off suggestions the levy would see donations to the flood appeal dry up.
Premier Bligh said she hoped Australians understood money they had donated to the appeal would help flood-affected mums and dads, while the levy would fund major infrastructure rebuilding work.
Ms Gillard said Australia had a strong economy, and “we should not put off to tomorrow what we are able to do today”.
“In a growing economy, we pay as we go,” she said.
Economists’ reaction was one of surprise about the size of the levy, and the government’s continued goal to return the budget to surplus by 2012-13. ANZ economist Katie Dean said the levy’s increase was the equivalent of as much as a 25 basis-point interest rate rise by the Reserve Bank.
“For the markets it’s seen as quite negative because it’s a bigger levy than has been flagged,” she said.
“We’re not convinced that the government should have been as adamant to let the budget return to surplus in 2012-13 as planned given that it was quite a small surplus anyway and this is quite an extraordinary circumstance.
“They will be hitting the consumer sector with this levy at a time when it’s already being squeezed. It will certainly have some impact on growth,” said Ms Dean.
The floods would probably lop about half a percentage point of the economy’s growth this year, Ms Gillard said.
According to the latest Treasury estimates, the economy was headed for 3.25 per cent growth in 2010-11. The government predicted in November that the budget would return to a surplus – tallying about $3.1 billion – by the 2012-13 year
“This levy will take more money out of people’s pockets, it will damp consumer spending, doesn’t make much economic sense,” said Brian Redican, senior economist at Macquarie Group. “It is a purely political decision from a government that wants to protect its surplus.”
Some estimates of the damage bill have been as much as 1 per cent of the economy’s annual output, or the equivalent of about $13 billion. A separate report out today indicated the economy was already slowing before the floods hit.
“The great floods of this summer have been a national tragedy, not just a natural disaster because of the awful loss of human life, Ms Gillard told the National Press Club.
“We are grieving, we are burying the dead.”
But she said flood devastated areas are now “moving from crisis to recovery to rebuilding”.
She said deferring the cost for future years was a “soft option, and I am not prepared to do it”.
She said the federal government would make an immediate $2 billion payment to help Queensland’s 60 flood-affected communities to re-build, to be managed by the Queensland Reconstruction Authority.
Legislation for the tax will be brought in as soon as Parliament resumes the week after next, with people hit by the floods exempt from the levy.
The opposition has pledged to oppose the new tax, so it will need support from some of the House of Representatives independents and minor players in the Senate. Ms Gillard said she had spoken to rural independents Rob Oakeshott and Tony Windsor earlier today to discuss the levy.
Massive flooding in recent weeks has claimed at least 23 lives and inundated more than two-thirds of Queensland and a quarter of Victoria as well as other regions.
In addition to the levy, the government will scrap or defer a range of programs saving about $675 million, many of them in the carbon-reduction area.
Of the group, the Green Car Innovation fund will end, while the Clean Car fund will not go ahead. The carbon capture and storage and solar flagships will be pared back, and the Global Carbon Capture and Storage Institute will have its funding affected.
The Greens, which hold key votes in both houses of parliament, attacked the cuts to environmental budget cuts.
Greens Acting Leader Christine Milne said her party would seek urgent talks with Prime Minister Gillard on alternatives including deferring of planned corporate tax cuts.
“It beggars belief that the government would choose to cut climate change programs … to fund disaster relief when such disasters will be made worse by climate change,” Milne said in a statement
The Prime Minister said the government remains committed to the National Broadband Network, education and health care reforms, and plans for setting a price on carbon.
“Australians rightly expect their government to be able to do more than one thing at the same time,” Ms Gillard said.
Preliminary estimates of the rebuilding costs in Queensland tally $3.9 billion, with other flood-hit areas is about $1 billion, Ms Gillard said. Several Victorian towns, including Swan Hill on the Murray River, remain under threat from river levels while other towns in the north-west of the state may be isolated for some time yet.
The government has already made disaster recovery payments to about half a million people, transferring about $600 million, she said. The Disaster Income Recovery subsidy has also spent about $120 million.
“Anyone who receives the Australian Government Disaster Recovery Payment for a flood this financial year will be exempt,” she said. “And importantly, this levy is completely separate from donations.”
The Prime Minister said savings would effectively deliver $2 for each dollar raised by the levy to meet the government’s costs.
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