Australia planning more taxes to fund flood relief effort

The Australian government has proposed a tax to partially recoup the more than five billion Australian dollars (£3.1bn) it expects to spend on rebuilding after major flooding.

Prime Minister Julia Gillard announced yesterday the temporary tax would apply to Australians on above-average incomes from July and raise 1.8bn Australian dollars to pay for massive destruction from weeks of flooding along the east coast that is continuing further south.

But the new tax will need the support of independent politicians to become law when legislation is introduced to parliament next month.

The main opposition party opposes it.

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Initial estimates of the damage bill and cost of emergency grants to flood-affected communities for the federal government is A$5.6bn (3.5bn).

The federal government is to pay 75 per cent of the cost of rebuilding infrastructure such as roads and ports, while state and local governments will 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 bill for infrastructure.

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

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She said the government expected the floods to shave 0.5 per cent from Australia's 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 Ms Gillard's Labour Party commands a majority in the House of Representatives with the support of three independent lawmakers plus one from the minor Greens party.

Ms 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.

Some economists and business leaders say she should reconsider.

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A central bank director, Warwick McKibbon, estimated the cost of reconstruction could be between A$10bn (6.23bn) and A$20bn (12.45bn) and said the government should keep the budget in deficit for longer to pay that.

Western Australia state premier Colin Barnett, one of only two state leaders who is not a member of Ms Gillard's party, said most Australians would happily pay an extra tax to rebuild Queensland, the worst-affected state in the east.

"I believe most Australians – most West Australians – are willing to contribute a little bit more to help Queensland get back to its feet," Mr Barnett said.