Greg Ansley: Legislators bracing for massive flood repair bill

State budgets will be hit hard, and local councils will be struggling. Photo / Getty images

As Australia surveys the carnage of months of flooding across the nation - especially the latest disasters in Queensland and Victoria - the scale of cost is only just starting to be realised.

No one yet has any real idea of the final sum, nor of its impact on an economy that before the downpours had been ready to surge on the back of a new resources boom.

Estimates of the bill for the Queensland floods alone run to about A$5 billion ($6.5 billion) for reconstruction, and as high as A$20 billion for broader economic costs to the nation.

Economic growth will almost certainly be pruned - at least in the first quarter - and the May federal Budget is likely to contain fierce spending cuts and constraints, particularly with the Government's determination to return to surplus.

"Obviously it would be irresponsible of me at this stage to be indicating how that's all going to be done - we don't even know what the price tag is yet because we can't even know what the full flood damage is," Prime Minister Julia Gillard said.

"We face some very tough choices with the federal Budget, but we will make them so that we are there rebuilding Queensland and so that we are there bringing the Budget to surplus in 2012-2013."

Among the options being considered is a one-off flood levy, similar to the 1 per cent one-off income tax levy used in 2003 by former conservative Prime Minister John Howard to fund a weapons buy-back as part of new gun laws. Any such move would be opposed by the Opposition, which accuses the Government of over-taxing and "indulgent spending".

"Spending cuts are tough decisions, new taxes aren't," shadow finance minister Andrew Robb said.

There is also opposition growing among business and union leaders to Gillard's insistence on returning to surplus while such a vast bill looms from the floods.

Consumer confidence has plummeted.

The latest Westpac-Melbourne Institute consumer sentiment survey, made as floods devastated Toowoomba and raged across the Lockyer Valley, reported a 3 per cent nationwide fall in confidence. Optimism about the next 12 months fell 16 per cent.

Earlier flooding was serious but Australia has been awed by the inundation of vast areas of Queensland in the past two months, submerging the southeast of the state in an arc from Rockhampton in the north, south to the New South Wales border, and beyond Toowoomba in the west.

The region holds much of the wealth of the state - and the nation - including 56 per cent of Australia's coal exports, more than a quarter of its fruit and vegetables, most of its sugar and cotton, and significant grain and beef production. Many coal mines were shut down by floodwaters, hitting production and sales.

Other operations were also affected: BHP Billiton said the Queensland floods had cut its December iron ore production by 30 per cent.

Mining service contractors, port and rail operators, tourism, retailers, small business, and building and construction were equally hard hit.

The toll on infrastructure through damage to roads, rail, bridges, communications and service facilities has been enormous.

The Queensland Government estimated its repair bill for roads would run to A$1.5 billion, and Queensland Rail has said it expects this year's projected net profit to be cut by up to 21 per cent.

Banks are also expected to suffer, with the Sydney Morning Herald reporting an expected surge in defaults by stricken homeowners and businesses, and Goldman Sachs warning of more than A$4.8 billion of loans at risk in Queensland.

Insurers will face large payouts but these will be limited by the fact that many damaged properties were not covered - a fact that has forced the industry into negotiations with the federal Government and threats of a class action by the United Retail Federation.

Across Australia, agriculture has been hammered, with national farm production expected to fall by A$2.5 billion in 2010-11.

Food prices are already climbing.

"There is no doubt there will be some impact on the cost of living," said Treasurer Wayne Swan.

State budgets will be hit hard, and local councils will be struggling.

But the outlook may not be as grim as the devastation suggests, hard as it will be for people and businesses struggling to recover.

The coal industry is expected to gain from rising prices as lost output crimps global supplies, and even with the damage caused by floodwaters, agricultural production is still expected to rise significantly above last year.

Further benefits will come from replenished subsoil moisture, refilled dams and major flows and capacity storages down the previously parched Murray Darling basin. If no further disasters emerge, farmers should harvest huge crops next season.

Nor are economists despondent about economic growth.

Most expect a blow to GDP, mainly concentrated on the first quarter and generally estimated at about 0.2 to 0.3 per cent, but predict rapid recovery from resurgent commodity incomes, and the massive spike in activity from reconstruction.