Australia proposes 'flood tax'

Tax expected to raise $1.8bn of the estimated $5bn needed for repairs following havoc caused by widespread flooding. Last Modified: 27 Jan 2011 08:12 GMT

Julia Gillard, the Australian prime minister, said damage caused is around $5bn [GALLO/GETTY] The Australian government has proposed a new tax to raise funds for reconstruction work following massive destruction from weeks of flooding in eastern Australia. Julia Gillard, the Australian prime minister, said the cost of the damage totals around $5bn. On Thursday, she announced a one off tax on employee's earnings to help pay the repair bill. The proposed tax partially recoups more than $5bn it expects to spend on rebuilding after widespread flooding that could prove to be Australia's costliest natural disaster. "In time, it may prove to be the most expensive natural disaster our nation has ever seen," Gillard told the National Press Club. The 0.5 per cent tax, expected to raise some $1.8bn, would only apply to incomes higher than $50,000 for the 2011-12 financial year. People directly affected by the flooding would be exempt. The levy is equal to just 0.15 per cent of Australia's annual economic output. 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. Preliminary estimates Gillard repeated her vow to bring the budget back to surplus by 2012-13, when she said the economy would be "running close to full capacity". She warned that the estimates were preliminary and could rise, with government revenues to take a hit into the future as tax receipts fall. The flooding that has claimed 35 lives, damaged or destroyed 30,000 homes and businesses and cost at least $3bn in damage to crops and lost coal exports. 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. 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 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 Labour Party commands a majority in the House of Representatives with the support of three independent lawmakers plus a legislator from the minor Greens party. 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.

Source: Al Jazeera and agencies