Gillard sets levy to pay flood bill

A local resident wades through flood waters from the Wimmera River in Dimboola, Australia. Many small towns in Victoria are ordering evacuations as water levels continue to rise, with peaks now expected later this week. Photo / Getty Images

The federal government will impose a one-off flood levy of 0.5 per cent for middle-income earners, Australian Prime Minister Julia Gillard says.

A levy of 0.5 per cent will be applied on taxable income between $50,001 and $100,000 and a levy of one per cent will be applied on taxable income above $100,000.

"Anyone earning under $50,000 will not pay the levy," Ms Gillard told the National Press Club on Thursday.

"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."

Someone who earns an income of $60,000 will pay just under $1 extra per week under the levy, Ms Gillard said.

"A person earning $100,000 per year will pay just under an extra $5 per week," she said.

The levy would apply only in the 2011-12 financial year and was expected to raise $1.8 billion, she 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."

Early figures suggest the direct total cost of the floods to the federal government will be $5.6 billion, including rebuilding and disaster assistance payments.

Rebuilding in Queensland is estimated to cost $3.9 billion, while the damage bill for other flood-hit areas was put at $1 billion.

"So that is the immediate budget challenge, to find over $5 billion," Ms Gillard said.

Federal Opposition Leader Tony Abbott warned public donations to the flood appeal could dry up if the government imposes a levy.

Mr Abbott says the boost to the levy is unnecessary as the government should be able to find the funds by cutting wasteful spending.

Apart from the impact on the hip-pocket the levy also could have flow-on effects, he said.

"The prime minister is on the one hand urging people to donate generously to the flood relief fund but the people she wants to donate she's also going to hit with a tax," Mr Abbott told Macquarie Radio.

"Why would you donate when the government's about to tax you for the same thing?"

Mr Abbott compared the tax to Coles and Woolworths deciding to donate $5 million to the flood relief fund, then putting up the price of groceries to pay for it.

"People would feel ripped off," he said.

Reserve Bank board member Warwick McKibbin said the new tax on households would slow consumer spending unnecessarily.

Short-term financial assistance to about 500,000 Australians was estimated to cost the government more than $600 million, while a recovery subsidy for small businesspeople and farmers was worth another $120 million.

The floods had had an immediate impact on the economy, but the cost of disruption would also continue for some time, Ms Gillard said.

"Treasury's preliminary estimates are that GDP growth in this financial year will be around half a percentage point lower due to the floods."

The government also would fast-track approvals for temporary skilled migrants who work on flood rebuilding, Ms Gillard announced.

"Skilled labour will be as important as funding for rebuilding," she said.

"There will be extra resources, assistance to employers and simpler processes to ensure a five-day turnaround for decision-ready applications for workers in a host of nominated occupations to work on rebuilding Queensland."

The government would double the pilot of relocation assistance for people on income support and direct it to Queensland.

"Up to 4000 eligible jobseekers who want to get a job helping out will now receive support to move to Queensland and make a difference on the ground.

"The offer to these jobseekers is simple: we can get you help to get there if you can stick at the job."

Ms Gillard said because the economy was growing and national income rising, the nation could afford to pay for flood rebuilding now.

"We must never take future growth for granted, so we should not put off to tomorrow what we are able to do today," she said.

"Solely borrowing to rebuild Queensland is a soft option I am not prepared to consider."

With so much new spending on the cards, Ms Gillard said the government must also take some demand out of the economy.

If it didn't, the cost of skilled labour and building materials would go up and other industries would struggle.

"(This would) ultimately spill over into higher inflation and interest rates," she said.

"So sound budget principles say we should pay as we go, and sound economic principles say we should not add to capacity pressures."

The $5.6 billion damage bill will be funded through a variety of ways, Ms Gillard said.

The levy will provide $1.8 billion, while another $1 billion will be found through delaying some infrastructure projects.

That will free up funds as well as skilled workers, although they're unlikely to have trouble finding another job given the skilled labour shortage, Ms Gillard said.

The government will also deliver $2.8 billion in spending cuts, including removing industry assistance.

The government also will delay or reduce infrastructure projects to save approximately $675 million.

"Over coming days I will be discussing these projects directly with the affected state governments before the minister for infrastructure publicly announces the details of our changes," Ms Gillard said.

"The savings from these infrastructure decisions make a major contribution to funding the rebuilding.

"Perhaps even more important, these decisions will free up skilled labour for rebuilding."

The government will cut and cap spending in other areas too.

"I am abolishing, deferring and capping access to a number of carbon abatement programs," Ms Gillard said.

These include the Green Car Innovation Fund, Cleaner Car Rebate Scheme, the Carbon Capture and Storage Flagships and Solar Flagships, the Solar Hot Water Rebate, Green Start Program, Solar Homes and Communities Plan and the Global Carbon Capture and Storage Institute.

"The key to these carbon abatement program savings is my determination to deliver a carbon price."

Some of these policies are less efficient than a carbon price and will no longer be necessary, Ms Gillard said.

- AAP