Chapter 1 - Introduction


Chapter 1 - Introduction

Referral of the bill

1.1        On 3 March 2011 the Senate referred the Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 and the Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 to the Senate Economics Legislation Committee for inquiry and report by 21 March 2011.[1]

1.2        In referring the bills for inquiry, the Selection of Bills Committee noted that a quick reporting date was required to ensure certainty for taxpayers, businesses, employers and software providers.[2] The bills were also the subject of an inquiry by the House of Representatives Standing Committee on Economics. That committee reported in February 2011 recommending that the House pass the bills.[3] The bills were subsequently passed by the House on 24 February 2011.

Conduct of the inquiry

1.3        As per usual practice, the committee advertised the inquiry on its website. It also wrote to stakeholders inviting written submissions by 10 March 2011. The committee received seven submissions, which are listed at Appendix 1.

1.4        The committee held a public hearing in Canberra on 11 March 2011 where it took evidence from six stakeholders. A list of those from whom evidence was heard can be found in Appendix 2.

1.5        The committee thanks all who participated in this inquiry, particularly given the tight timeframe for making submissions and appearing at the hearing.

Overview of the bill

The need for action

1.6        The natural disasters experienced throughout Australia over the past few months are unprecedented in terms of their size and scale. The devastation that has been visited on peoples' lives, towns, public infrastructure and the economy leaves no doubt that government assistance will be required in rebuilding communities.

1.7        The Queensland floods resulted in an unforseen scale of destruction with 67 of the 73 local government areas being declared disaster areas under the National Disaster Relief and Recovery Arrangements;[4] preliminary estimates identified that over 80 per cent of national, state and local government roads and that Queensland's economic growth would drop from 3.75 per cent to 1.25 per cent in the 2010-11 year.[5] The extensive flooding experienced throughout Queensland was compounded by the occurrence of tropical cyclone Yasi which crossed the Queensland coast causing further destruction.

According to new estimates from Treasury, Yasi may have wiped out around $700 million in rural production, $200 million in non-rural exports due to temporary coal terminal closures, and about $100 million in tourism activity.[6]

1.8        Queensland was the worst affected by the floods but there were flood affected areas in most states. It is estimated that the extent of the damage will cost the nation $5.6 billion. This led to the announcement of a federal response.

The main provisions of the bill

1.9        The bills introduce a one-year progressive levy in the form of additional income tax in the 2011-12 financial year.[7] The bills include a sunsetting clause to ensure that the provisions that give effect to the one-off levy will be repealed on 1 July 2016.[8]

Compliance costs and revenue implications

1.10      The changes proposed by the bill are expected to have minimal compliance costs as the levy will be administered and collected as part of the existing tax framework.[9] Compliance costs that are incurred will be borne by software providers and employers who will need to increase pay as you go withholding amounts from some employees' salary and wages for the 2011-12 year.[10]

Scrutiny of Bills Report

1.11      The Scrutiny of Bills Committee reviewed the bills in accordance with their terms of reference but had no comments on either bill.[11]

Background of the bills

The National Disaster Relief and Recovery Arrangements

1.12      Constitutionally, each state and territory is responsible for determining the level of assistance to be provided to individuals and communities after a natural disaster. The Federal Government however does provide assistance to the states and territories through the National Disaster Relief and Recovery Arrangements (NDRRA).[12] Under these arrangements the Federal Government may reimburse 50 to 75 per cent of state or territory expenditure on eligible natural disaster relief and recovery costs.[13]

1.13      States and territories become eligible to claim funding from the NDRRA when a natural disaster has occurred; the relief and recovery expenditure of the event exceeds $240,000; and the state or territory notifies the Attorney-General's Department of the event (the Attorney-General's Department administers the NDRRA).[14]

The House of Representatives' inquiry

1.14      On 10 February 2011 the House of Representatives referred these bills to the House Standing Committee on Economics for inquiry with a one week reporting timeframe.[15] In their report the committee explored a number of issues including:

  • the extent to which the current reconstruction would prepare Queensland for future floods;[16]
  • whether there were any barriers to individuals privately insuring their properties and contents against flood;[17]
  • the operation of the bills;[18] and
  • the views of economists.[19]
The operation of the bills

1.15      Although the House Committee did not raise any concerns with the drafting of the bills they did note that the funds raised by the levy will be paid into the Consolidated Revenue Fund. There is no legal requirement in the bills that the funds raised by the levy be used for reconstruction purposes. The Government has instead given that commitment under the National Disaster Relief and Recovery Arrangements.[20]

1.16      Evidence given to the committee from the Department of the Treasury identified that the levy will be payable by approximately 4.66 million people – just under half of Australia's taxpayer population.[21] The Treasury also confirmed that there may be unintended consequences for taxpayers who take a superannuation lump sum during the 2011-12 year as this will inflate their taxable income although such taxpayers can rearrange their affairs to mitigate against any such consequences.[22]

Structure of the report

1.17      The report is comprised of three chapters:

  • Chapter 2 investigates the technicalities of the bill and its implementation; and
  • Chapter 3 analyses the various issues raised throughout the inquiry and explains the rationale for the levy.

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