Australia: The Great Shrinking Land

In a rare moment of unity, Australia's political leaders yesterday joined to mourn the victims of the nation's catastrophic summer and praise the emergency workers and volunteers who have battled to save lives and rebuild communities.

With a trembling voice and close to tears, Prime Minister Julia Gillard promised that the work of reconstruction would continue apace well after the attention of the country had moved on.

Opposition leader Tony Abbott commended the Government on its handling of the emergency and said that Gillard's efforts to meet and comfort victims of flood and cyclone showed that she had a "decentheart".

As they spoke at the first parliamentary session of the year, firefighters in Perth brought under control one massive bushfire that destroyed 68 homes in two furious days, and another that burned more than 1000ha to the city's north.

But beyond yesterday's sentiments, Australia will face a political storm, massive costs, cuts to government spending and a slowing economy as the full impacts of flooding over vast tracts of the continent and of Cyclone Yasi become clear.

Despite Abbott's commendations, the Opposition is using disaster to gain momentum, attacking Gillard's plan to impose a A$1.8 billion ($2.7 billion) tax levy to help pay for flood reconstruction.

Abbott has instead proposed a further A$2 billion in spendingcuts.

Gillard is refusing to back down, but has yet to win over the independent and Green MPs she will need to push the levy through.

The total cost of the serial disasters that have submerged and smashed Queensland, New South Wales, Victoria and Western Australia has yet to be fully counted - even the figures Gillard has used in her tax-and-slash flood package are preliminary.

Her levy, supplemented by A$2.8 billion in spending cuts and A$1 billion in deferred infrastructure projects, was based on an initial estimated bill of A$5.6 billion for rebuilding roads, bridges, telecommunications and other infrastructure.

The Queensland Government will spend a further A$1.5 billion.

But further costs have been building: agricultural production slashed by up to A$600 million - plus massive farm damage - and A$2.5 billion cut from Queensland's coal exports.

Further severe flooding in Victoria has lifted the total cost even higher, and will further hit both federal and state budgets.

Estimates for the cost of Cyclone Yasi start at a minimum A$1 billion and are expected to rise significantly, with some modelling putting the final cost at up to A$5 billion.

Yasi will cost the Commonwealth at least A$500 million and probablymuch more, with Queensland to meet further costs and local government expecting a slug of more than A$500 million.

Crop losses - mainly sugar and bananas - have been estimated at a minimum A$800 million and coal miners expect to lose a further A$500 million.

The economy will suffer heavily, with the floods alone stripping 0.5 per cent from economic growth, and the combined disasters pushing up inflation.

Treasurer Wayne Swan said that the economy could even shrink for the first time since the global financial crisis.