Levy Imposed by Australian Government After Cyclone Yasi Could Help Pay for Recent Flood Damage: Reserve Bank Deputy Governor

The Australian federal government imposed a levy after Cyclone Yasi hit Queensland in 2011. Reserve Bank deputy government Christian Hawkesby says this could be a precedent the Government could consider to help pay for the damage from recent floods. Hawkesby said the central bank was in close contact with the Treasury, which is understood to be weighing up options to prevent the rebuild from Cyclone Gabrielle blowing out government debt. The levy saw taxpayers earning more than A$50,000 (NZ$54,600) a year required to pay 0.5% of their income on top of their income tax to finance repairs from Cyclone Yasi, with those earning more than A$100,000 paying 1%.

The Green Party has instead floated the idea of a levy on big businesses’ excess profits to help with the cyclone costs. Hawkesby said the contact with the Treasury helped ensure the bank had accurate information “in terms of what fiscal policies there are and how they fit into the picture of what we’re doing.” But he believed it was “very early days” in deciding what those policies would be. The Reserve Bank expects to have much better information on the likely costs of the cyclone by the time it next reviews its monetary policy on April 5.

Related Facts

• The Australian federal levy was imposed for one year and is believed to have paid about a third of the A$5.6b cost of rebuilding Queensland’s infrastructure.
• Finance Minister Grant Robertson has said the cost to the Government of the cyclone will likely lie somewhere between the cost of the Kaikōura earthquake and a figure close to the $13b fiscal price of the Canterbury earthquakes but would be partly insured.
• The Treasury initially estimated the cost to the Government of the Kaikōura earthquake at $2b to $3b.
• The Reserve Bank has warned the floods will increase inflation.

Key Takeaway

The Australian federal levy imposed after Cyclone Yasi in 2011 could be a precedent the Government could consider to help pay for the damage from recent floods. The levy saw taxpayers earning more than A$50,000 (NZ$54,600) a year required to pay 0.5% of their income on top of their income tax to finance repairs from Cyclone Yasi, with those earning more than A$100,000 paying 1%. However, the Reserve Bank expects to have much better information on the likely costs of the cyclone by the time it next reviews its monetary policy on April 5.

Conclusion

The Australian federal levy imposed after Cyclone Yasi in 2011 could be a precedent the Government could consider to help pay for the damage from recent floods. The levy saw taxpayers earning more than A$50,000 (NZ$54,600) a year required to pay 0.5% of their income on top of their income tax to finance repairs from Cyclone Yasi, with those earning more than A$100,000 paying 1%. However, the Reserve Bank expects to have much better information on the likely costs of the cyclone by the time it next reviews its monetary policy on April 5. People can expect insurance bills to rise as higher reinsurance costs flow through to higher insurance costs.