Australia's wealthy to take strain of flood tax

CANBERRA - Prime Minister Julia Gillard will tax middle-income earners and the affluent, and cut almost A$3 billion ($3.7 billion) from Government programmes to rebuild flood-stricken Australia.

Gillard yesterday announced a special one-off A$1.8 billion levythat will exclude the low-paid and those affected by flooding to helpfund the massive cost of what she said could be the nation's mostly costly disaster.

The Government's estimated damage bill ran to A$3.9 billion in Queensland and, with flooding in other states, the "best preliminary estimate" of the total cost of rebuilding was put at A$5.6 billion - a figure Gillard warned could rise.

This was expected to hew 0.5 per cent from gross domestic product this financial year.

The cuts in government spending include the axing or capping of a number of climate change initiatives that she said would be replaced by the more efficient pricing of carbon - a controversial policy Gillard remains determined to introduce.

Other cuts will be made to industry programmes.

The rebuilding strategy also plans to divert skilled labour from existing - and now deferred - infrastructure projects, streamline visas for temporary skilled migrants, and to increase incentives for up to 4000 jobless workers to move to Queensland to help rebuild the state.

The levy and the cuts will also ensure the Government achieves its target of a budget surplus by 2012-13, a move that a number of economists have questioned.

"This is a big job and there will inevitably be setbacks, but we are up to the challenge," Gillard told the National Press Club.

"Whether with a mop or a shovel or a bulldozer, Australians see what needs to be done and are doing it. It is no different for the Government. I see what needs to be done, and I willdo it."

She said she would be speaking to the independent MPs she will need to push the necessary legislation through Parliament, but will meet determined resistance from the Opposition, which believes Gillard should drop the levy and make more cuts.

Opposition leader Tony Abbott said Australians were already paying too many taxes and there was no need for another impost on top of the mining and carbon taxes Gillard planned to introduce this year.

"The Coalition strongly opposes this new tax," he said.

"Many victims will pay, including those who don't qualify for assistance."

Gillard's programme comes as flooding continues in Victoria, adding to the vast areas of Queensland and New South Wales that have been inundated in a disaster that has killed at least 23 people.

In Queensland, where three-quarters of the state was affected, the state Government will today release its estimates of the cost or rebuilding, and is expected to announce its own budget cuts.

The state will be given an "immediate" A$2 billion by the federal Government.

Gillard said Australia faced a huge one-off cost, 75 per cent of which would be met by the federal Government.

This included more than A$720 million in disaster recovery and income recovery grants and subsidies.

"We have the advantage that our economy is strong," Gillard said.

"That means we have the capacity to pay as we go."

She said that while Australia faced the immediate task of rebuilding from the floods, it also needed to continue building for the future and she intended to continue reforms in education and health, and to introduce carbon pricing.

That meant raising extra money and cutting spending.

Gillard's new one-year levy for 2011-12 will exclude anyone affected by the floods and those earning less than A$50,000 a year.

Taxpayers earning between A$50,000 and A$100,000 will be levied at the rate of 0.5 per cent, cutting income by just under A$1 a week, and those on incomes of more than A$100,000 will pay 1 per cent, or about A$5 a week.

This would raise A$1.8 billion, Gillard said.

"People who were affected by the floods will not pay this levy.

"Anyone who receives the Australian Government Disaster Recovery Payment for a flood this financial year will be exempt.

"And importantly, this levy is completely separate from donations."

The Government will also save A$1 billion by deferring work on road projects in Queensland and other states, releasing skilled labour for rebuilding.

Gillard also plans to axe or cap a range of climate change-related programmes, including the Green Car innovation fund, the cash-for-clunkers car scheme, LPG vehicle conversions, and solar hot water rebates.