Australia proposes new tax to spend on flood rebuilding

CANBERRA, Australia — The government proposed a new tax Thursday to partially recoup more than $5 billion it expects to spend on rebuilding after widespread flooding that could prove to be Australia’s costliest natural disaster.

CANBERRA, Australia — The government proposed a new tax Thursday to partially recoup more than $5 billion it expects to spend on rebuilding after widespread flooding that could prove to be Australia’s costliest natural disaster.

Prime Minister Julia Gillard announced that the temporary new tax would apply to Australians on above-average incomes and raise $1.8 billion to pay for massive destruction from weeks of flooding in eastern Australia.

The flooding that has claimed 35 lives, damaged or destroyed 30,000 homes and businesses and cost at least $3 billion in damage to crops and lost coal exports.

Initial estimates of the overall damage bill plus the cost of emergency grants to flood-effected communities for the federal government is $5.6 billion and likely to rise, Gillard said. The federal government must pay for 75 per cent of the costs to rebuild infrastructure such as roads and ports, while state and local governments pay 25 per cent.

The government plans to cut spending in other areas including clean energy industry incentives to make up the remainder of the federal bill for infrastructure.

“In time, it may prove to be the most expensive natural disaster our nation has ever seen,” Gillard told the National Press Club.

She said the government expected the floods to shave half a percentage point from Australian gross domestic product, which the government predicted in November would grow by 3.25 per cent in the current fiscal year ending June 30.

The legislation is to be introduced to parliament next month. The main opposition party opposes it, but the measure seems likely to pass because Gillard’s Labor Party commands a majority in the House of Representatives with the support of three indepedent lawmakers plus a legislator from the minor Greens party.

Gillard, whose government has vowed to make Australia one of the first developed countries to return its annual budget to surplus two years after the global economic crisis, has dismissed the prospect of borrowing to pay for the flooding damage.

Some economists and business leaders say she should reconsider.

Warwick McKibbon, a central bank director, estimated the cost of reconstruction could be between AU$10 billion and AU$20 billion and said the government should keep the budget in deficit for longer to pay that.

“I don’t think any great harm would have been done had the government simply allowed the deficit to be larger or the return to surplus be slightly delayed from a schedule that was drawn up well before this most extraordinary disaster,” said Saul Eslake, an economist with the Grattan Institute policy think-tank, told Australian Broadcasting Corp. radio.

A vast inland sea of floodwaters continued creeping across southeastern Australia on Thursday, inundating farms and houses. Dozens of homes were swamped this week in communities outside Swan Hill, and the Victorian state capital of Melbourne is next in the path of the high waters.

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