The Australian Government's Proposed Flood Levy to Fund the Rebuilding of Areas of Queensland - Case Study Example

Topic Chosen (g) The Australian Government's proposed Flood Levy to fund the rebuilding of areas of Queensland damaged by the severe floods in early 2011. By (Name) Course title Name of tutor Institution name Department Date of Submission Executive summary Floods and bushfires have been Australia’s major weather nightmares in the recent past leading to catastrophic occurrences. Just to mention a few, in December 2010, sections of New South Wales and Western Australia rainfall level that had never been experienced according to Rajca and Corvini(2010). He Queensland government website (2011) notes that other incidences that followed were in late December 2010 and early January 2011, an extraordinary level of flooding occurred in Queensland, resulting in three-quarters of the state being declare to be a disaster zone.  Yet another flood occurrence as recorded by the government of Victoria (2011) in January 2011, where Victoria experienced extremely heavy rainfall and flash flooding. This paper takes into account the flooding disaster that occurred in Queensland and examines its aftermath, which came with the imposition of the flood levy bill. The Australian Government's proposed Flood Levy to fund the rebuilding of areas of Queensland damaged by the severe floods in early 2011.This paper discusses the in depth situation as far as the flood levy bill is concerned and tried examines the reasons for and against the legislation that was passed by the Australian government. In this paper, I also examine the causes, relevance, the long term and the short term implications of this policy on the Australian citizens and the economy at large. I will also point out the general reception of the policy by the civilians and the reaction of government officials based on previous experience with the policies that came before the flood levy policy. The consideration of this as one of the major macroeconomic policies that affect the economy of Australia will also be made in the conclusion of this paper. Introduction and Background In the duration 2010-2011, a series of floods hit on Queensland, Australia right from December 2010 that led to evacuation of thousands of citizens from the surrounding town and cities. The damage caused by the floods was estimated to be Australian dollars 1 billion before it escalated to $2.38 billion. The catastrophe covered about 70 towns with over 200, 000 people affected. According to ABC News (2011), the catastrophic even significantly affected Australia’s GDP by an estimated $30 billion reduction. Due to the need of recovery of the lost infrastructure and the need to rebuild Queensland, the Australian government put forward bill that amended the tax law. The Bill amended the Income Tax (Transitional Provisions) Act 1997 (the Transitional Provisions Act) . The Bill required a tax payer to pay an additional income tax for the financial year 2011-2012. The pre-conditions of the additional tax were that the taxpayer sis an individual, and having a taxable income for the 2011–2012 exceeds $50 000. The then Prime Minister, Julia Gillard, made an announcement on 27 January 2011 after a lengthy speculation that the Australian Government would invest about $5.6 billion to rebuild and reconstruct the flood-affected communities, in which a greater percentage of the investment would go to rebuilding Queensland infrastructure. The breakdown of the acquisition of this investment fund was as follows. The government would source $1.8 billion by imposing a regular flood levy on Queensland taxpayers who had a taxable income exceeding $50,000. Another $2.8 billion would be sourced by trimming down expenditure including industry assistance and scoping down green initiatives. The other $1 billion would be release by delaying other infrastructural development plans within Australia. One major result of the levy is a consequent reduction in saving of the taxpayers. When their expenditure and deductions increase, their level of savings experience a an equal economic push in the opposite direction. On appendix Figure 2, it is shown that the taxpayer saving reduce towards the bottom left with imposition of the levy. The issue of interest. The issue of interest to this paper here is the extra income known as the ‘temporary flood reconstruction levy’. The taxpayers who were part of the victims of the natural disasters between 1 July 2010 and 30 June 2012 were exempted from paying the tax. The Bill to enact this law was introduced at the very same time as the Income Tax Rates Amendment (Temporary Flood Reconstruction Levy) Bill 2011 and bother were referred to as the ‘flood levy Bills’. The Bill was passed to the standing committee Economics (the Economics Committee) who invited submissions from the public and held a public hearing in Canberra on 16 February 2011 as well.  The committee again reported the results to the House of Representatives on 21 February 2011. The big question here becomes, were the people okay with this? Was the additional levy on Queenslanders the only way of adding to the reconstruction funds? The Queensland Times (2013) in a blog post examined the reactions of the public and some of the officials to the imposition of the additional tax. The Federal Treasurer of Australia said he was taken aback by Queensland's plan to impose a levy on a section of taxpayers to pay for flood mitigation measures. He added that Queensland had already received a total of $6 billion over the past years specifically for flood recovery from the Commonwealth not to mention the $3 billion which was just yet to be spent. The QT post also indicates the reaction of Local Government Association of Queensland President Margaret de Wit. She said the proposed levy needed to be thoroughly scrutinized so as not to end up like the past events that had made the local government quite skeptical and she pointed out to the ambulance levy in 2002. She added that there it was necessary for the association to consider more details and consult councils member before they finally settle on that decision. She also indicated that her government would not endorse the levy without knowing exactly how much the levy would be, as there was uncertainty on whether it would be a flat rate or was going to be exclusively based on property values. To answer such questions as those addressed by Wit, the Prime Minister made it clear in press release that the federal government would impose a one-time flood levy of 0.5 per cent for middle-income earners. He levy will be applied to taxable incomes between $50,001 and $100,000 while a levy of 1% on taxable income above $100,000. The reasons that justify policy implementation. One big reason that justifies the implementation of the policy was the encouragement of national cohesion and collective responsibility. Queenslanders in helping to rebuild their own land would picture them as responsible citizens and capable of planting national cohesion among citizens. The president of the Australian Council of Trade Unions (ACTU), Ged Kearney argued as a nation, he and ACTU believes there is need to take collective responsibility for the welfare of each and every citizen of Queensland. He added that the time to realize the appropriateness of that need is the times of natural disaster which emphasizes the principle even better. Mr. Kearney explained a few reasons why the citizens should accept to pay the levy. He said that the levy would not last forever and was only temporary and one-off thing. He added that it was fair to everybody, since the victims of the flooding as well as the low income earners were exempted from remitting the flood tax, and that even the high – income earners would pay a considerably low fee. This initiative would also be aimed at raising funds for vital infrastructure programs which included road and railway line while helping in driving future economic and national productivity growth in the affected regions of Queensland. The amount per head that would be contributed by each individual was very small. Maryanne Mrakovic (General Manager of the Tax Analysis Division of the Commonwealth Treasury) in her report explained that the total number of taxpayers who earned over $50 000 was close to about 4.84 million. Out of this number, about 185, 000 taxpayers would be exempted from paying the tax being victims of the natural disaster. The number of taxpayers would progressively reduce the amount of money to be paid by each taxpayer. The reasons against the policy A poll carried out by The Sydney Morning Herald indicated a 27% for and 73% against the policy votes (Apendix Figure1.). This is a clear indication that most of the Australian population, Queensland to be precise did not agree to the imposition of the flood levy. Up to the time the Bill was being formulated, the Australian treasury admitted not to be having the exact estimate of the extent of damage that occurred to Queensland. This raises an important question whether it is appropriate to impose the levy yet there is not yet an accurate estimation of the extent of damage. Inasmuch as the amount that each taxpayer was a small percentage of his or her taxable income, it was not a fair deal to extend the burden of the tax is shared among such a low proportion of taxpayers, while exempting companies from paying the tax.  The rationale for not including companies was not properly explained by the relevant authorities. The previous levies too did not include companies majorly due to the fact they were tied to personal financial obligations such as the gun buyback scheme in 1996–1997 did not apply to companies. However, this could not be a reason to exclude the companies from paying the levy. Taking an example of the he gun levy was imposed and collected through the Medicare levy. The flood levy was however imposed through an increase in the rate of income tax paid by certain individual taxpayers. The imposition of the tax on the citizens was not appropriate since the government had many other alternatives to explore to get the money. For instance the Government could have funded the rebuilding in part or in full through additional borrowings. This would allow national deficit for the years between 2011–12 while lowering the surplus for the year 2012-13 from the earlier expected level. Secondly, the government could have made further reductions in expenditure rather than imposing a levy. In the context of the passage of the bill, the bill did not have proper legislative guidance as to the group of people that would be exempted from paying the levy. The circumstances under which an individual is exempted from paying the tax needed to be better particularized in order to bring a clear distinction in legislation. The bill did not make it clear if the tax would also apply to certain people in various capacities as those who were simply visiting an area at the time the flood hit but lost some personal assets such as vehicles, caravans or trailers and other camping equipments to the natural disaster. It did not consider that some people had made voluntary contributions in helping the flood victims to flood relief funds or that some people had volunteered their time and skills in a bid to assist in the efforts of flood recovery. Moreover, it did not care that there are citizens who continue to assist friends and relatives that were affected by the floods. The imposition of the tax to such people would void the idea of it being fair. Summary and conclusion Even though the Queensland government had other options in finance rebuilding to cater for the reconstruction of its territory and future flood mitigation plans, their reasons behind the imposition of the floods levy were reasonable and sound. This argument was in the context of the government need. Moreover, they had a plan that ensured equitability among those who paid the levy, a percentage of their income. The choice of a flat rate remission would prove more painful to the lower income earners than to the high income earners. However, considering the pinch on the taxpayers, it becomes selfish and inconsiderate of the government and the imposition is baptized with a NO from the citizens. It is probable that the reason why people have rejected the Gillard levy is because they do not subscribe to impromptu actions or surprises from their elected leaders and prefer predictable, stable governance at all times, even if it means supporting a government that pursues certain unpopular actions. Moreover, the people view the flood levy as a compulsion of generosity which undermines efforts their efforts to assist their fellow Australians and its actually the least of things they would expect from a Federal Government. This is because people expect government to assist and provided for those in need, and do not expect a comeback by the government with a cap in their hand demanding and not asking for further contribution by the taxpayer, among whom some have already dug deep down their pockets to assist in the disaster even before being told to. Achievement of policy objectives The policy of introducing the flood tax levy was passed and implemented. The Australian government since then has utilized the funds in making preliminary preparations for the major project or Queensland reconstruction. The Queensland reconstruction strategic plan projected the reconstruction to be completed by June 2014, and went for a total of $12.2 billion. The major part of the reconstruction program is funded by the Commonwealth (75 per cent) and while the other remaining 25% covered by the tax obligation on the Queensland tax payers together with solicited funds from cutting down of other development activities. The Queensland Reconstruction Authority planned six major lines of reconstruction that included human and social reconstruction, economic stability, environmental safety and conservation reconstruction, building and infrastructural recovery, roads and transport, community liaison and communication enhancement. Each line of reconstruction was overseen by task centered sub-committees that were drawn from the various communities and sections of the local government, industry as well as State and Commonwealth departments. The implementation of the lines was based on priorities. Making disaster risk reduction became a policy priority, early detection and warning systems, education, public information and public awareness, reducing the possible risk factors and enhancing active natural disaster preparedness. The Queensland government implemented some short and long term benefits associated with the flood mitigation and recovery. The benefits were both financial and non-financial and were distributed equitable to those affected by the floods all over the country. The government also established community driven development initiatives that would help in the recovery as follows: one was making investments responsive to informed demand with decisions based on accurate information regarding costs and benefits of options and communities’ invested resources. It also involved building participatory mechanisms for stakeholder involvement and community control by providing available community groups with knowledge, responsibility and control over the entire reconstruction period. The government also chose to invest in capacity building of community-based organizations aiming at emphasizing on capacity building and civic education. Facilitation of the community access to information was another implementation, by encouraging information flow. In conclusion, the Queensland government succeeded in it initiatives to rebuild and reconstruct the vicinity of the flood affected areas of the country with both the help of the Commonwealth treasury and the help of the taxpayers who dug deep into their pockets to assist in the contribution towards the reconstruction. One lesson can be learnt from the opposition of the flood tax levy by citizens, that it is the responsibility of the government to cater for people in need and not to return to the citizens asking for contributions. Bibliography Rajca and D Corvini, 5 December 2010 ‘Flood damage in billions: Natural disaster declared’, Sun Herald, p. 4. Queensland Government, 10 February 2011 ‘Queensland floods’, website, http://www.qld.gov.au/floods/ : Retrieved 12th August 2014 State Government Victoria, , website, 16 February 2011, ‘Victorian floods’http://www.vic.gov.au/news-detail/victorian-floods.html: Retrieved 12th August 2014 ABC News (Australian Broadcasting Corporation). 18 January 2011. "Flood costs tipped to top $30b". Archived from the original on 19 January 2011. http://www.abc.net.au/news/stories/2011/01/18/3115815.htm Retrieved 12 August 2014. J Gillard (Prime Minister), 27 January 2011, “ Rebuilding after the floods, media release, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F560489%22 : Retrieved 16 February 2011 The Queensland Times, 2013, “Proposed flood levy collected via rates may cause backlash” http://www.qt.com.au/news/queensland-facing-new-tax-pay-flood-levies/1871761/ Retrieved 12 August 2014 Apendix Figure 1 The Sydney Morning Herald Polls Figure 2 Taxpayers' propensity to save Read More