Saturday, 29 January 2011

Flood (levy) alert

Our Prime Minister has proposed a levy to raise money for the flood recovery effort. On the surface that sounds like a perfectly reasonable proposal. Everyone is affected, directly or indirectly, by the floods. Therefore everyone should contribute to the recovery - or so the argument goes.
Then there is also the argument that we have had other levies - for the gun buy back and the River Murray for instrance. The idea of a levy is not new.
This time however there is opposition to a levy and it is growing. The Reserve Bank of Australia has apparently quietly raised some questions about the wisdom of the levy. The RBA Board has to be careful what it says. Senior economists, from both the left and right of political economics, are also expressing doubts.
We still do not know what the recovery will cost. We will probably never know because there are costs that cannot be measured. The tax (because that is what the levy is) however is going to do three things if it is implemented.
The first thing is that it will do is add to inflationary pressures. These have already increased because of the event. Adding further pressure is clearly unwise but the government is arguing that the pressure will be minimal and households can afford it. This will have a lasting negative impact on the economy but probably not in such a way that many people will be immediately aware of. It may not affect the government's chances of another term in office.
The second thing is that it is introducing a new tax. At the present time that tax proposal is structured in such a way that it is asking some people to shoulder a much greater burden than others. Those seen as flood victims will pay nothing, those under a certain income level will pay nothing. That sounds fair. The problem is that combined household income is not being taken into account. This means that in a household where one person is earning $80,000 and another is earning $30,000 more could be paid than in a household where two people are $70,000 each.
The government apparently does not see this as inequitable, especially since they claim the levy will only be in place for a short time. (As governments are hooked on money the way a heroin addict is hooked on heroin this seems unlikely.) The government clearly does not see this inequity as affecting their chances of another term in office.
The third thing is the message that the government is giving to the community. They are saying "Don't bother to donate to charity. We will just tax you for the money required. The poor do not need to contribute at all. The rich can do that instead."
It is this third point which has the potential to have the greatest negative impact of all but it may not be a political impact - yet. Some of our essential services are maintained by volunteers. The State Emergency Service and country fire services/authorities in all states depend on volunteers. Without them rural areas in particular would not manage because the government does not provide or maintain these services, nor are they likely to do so. Other charities like Anglicare, St Vincent de Paul, the Salvation Army, Red Cross, refugee and multicultural services all assist in such events. There are other major charities which help people in need at other times, particularly people with disabilities and those at risk through mental illness, age and poverty. They all need donations to run. Yes money gets wasted but money also gets wasted by government. Anglicare is the largest social service in Australia. Although it gets a government grant much of what is done is done by volunteers and because of donations. Similar things can be said about other organisations.
A “flood levy” sends a clear message. “The government is taking over. Now, and in future disasters, we will tax you and provide you with what we think you need. There is no need for you to make any other contribution.” It is not like other levies imposed by the government because many Australians have already donated generously, often more than they could afford.
They feel the government is double dipping. It is.
It is also a recipe for social as well as economic disaster.
We could pay for the rebuilding effort by, at very least, delaying the NBN and adjusting the budget so that the projected surplus is reduced. This, I am told, makes far greater social and economic sense.
Why is the government not listening?


Sheep Rustler said...

The knock-on effect from the floods will lead to higher costs for food, higher insurance premiums, a big increase in employment for certain sectors of the community - all leading to inflationary pressures. We have already been warned there will be at least three interest rate rises this year. Even 'wealthy' households are going to buckle under the strain. The flood levy is yet another expense, at one level, that I don't know we can afford, on a personal level. But it the PM's attitude that upsets me the most - as you say, she is saying that the government will now tax people, almost of their own good, and they should feel righteous about it. It;s not 'mateship' - that was people donating what they could afford several weeks ago.We will be particularly hard hit because we are a single income family on a 'high' salary - which already contributes an enormous amount of tax every year. Thanks to all of these rising costs I am going to have to do what I have managed to avoid for a long time - go back to work to help pay household bills rather than being at home for my children when they need me. This is just another nail in the coffin. We have paid massive taxes for years, fully supporting the notion that high income earners should pay high taxes for the good of the country as a whole, but this feels like a whole new level.

Rachel Fenton said...

Classic peer pressure tactics. Make the people affected by the floods resent other people for not helping them via levy in the likely uproar at the idea, thus allowing the govt to go blame free.
Very old school thinking.

Sheep Rustler said...

My husband, who knows about these things, (trained economist) says that the levy will actually have a deflationary effect and probably rule out one of the rate rises we would otherwise have. So know I don't know what to think!!

virtualquilter said...

Not too sure that it is the government or just Julia who isn't listening or reading what people think. She has decided what is good for us and so it must happen .. unless her day is over.

Judy B

Anonymous said...

I think there may be varying views on the inflationary effect of the levy and that Gillard is trying to reduce the possibility by getting it to cut in at $50,000. However the general view among the economists I know is that it could have an inflationary effect, that it is unlikely to cut out after just twelve months and that the other likely negative impacts (such as a reduction in contributions to charity) are such that the levy should not be implemented.
Bob C-S

Donna Hosie said...
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