Dissenting report by Coalition Senators


Dissenting report by Coalition Senators

Introduction

1.1        Australia has experienced an unprecedented array of natural disasters in the summer of 2010-11. In particular, catastrophic flooding occurred in Queensland with widespread flooding also occurring in Victoria, Tasmania and Western Australia.  Some 67 of the 73 local government areas in Queensland were declared disasters areas under the National Disaster Relief and Recovery Arrangements.

1.2        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. The Bills proposed the introduction of a one-year progressive levy in the form of additional income tax in the 2011-12 financial year to raise approximately $1.8 billion towards the estimated $5.6 billion cost of rebuilding damaged areas.

The recommendation of the Committee was for the Senate to pass the Bills.

The Coalition Senators do not support the Committee’s recommendation.

Evidence

1.3        The committee heard from evidence from a number of economists who suggested that the proposed flood tax is not the only option available to the government.  Indeed, there was evidence given that more appropriate measures to cover the costs associated with rebuilding remain.

1.4        According to evidence given by Saul Eslake of the Grattan Institute, two primary alternatives to a flood tax should be considered, namely:

1.      a reduction in federal government expenditure, and

2.      borrowing the necessary funds and thereby temporarily increasing the budget deficit.

1.5        In his evidence, Mr Eslake clearly stated the case for reductions in government spending:

In my view, there certainly would have been scope for further reductions in government spending. Most of the reductions in government spending which the government announced fell into one of two categories. The first category was reductions which they had to make because there would not have been sufficient skilled labour to undertake both the rebuilding and reconstruction of infrastructure effort that is likely to be required and other infrastructure projects according to their original timetables in Queensland and in other parts of the country.

1.6        Although it is acknowledged that the government proposes cuts to expenditure to be coupled with the proposed flood levy, evidence given to the committee supports the Coalition’s position of other cuts being clearly available.  Professor Anthony Makin of the Griffith Business School noted that additional spending cuts could easily be identified in the 2011-12 federal budget and believed this was the preferred approach.  Professor Makin stated:

Cutting public expenditure, particularly on industry assistance, is in turn preferable to allowing the budget to slip further into deficit.

In a broader context, the whole economy should be taken into account with due regard to certain principles of macropolicy making. I would argue that one of those principles is to identify unproductive areas of spending across the economy and to make decisions to weed them out for the benefit of the economy in the longer term. There will be short-term costs, but to the extent that public consumption is cut it will add to saving in the economy and Australia is still relatively short on saving... Really, when looking at cutting spending across the board, there needs to be a whole-of-government review to identify those programs that are not delivering.

1.7        The appalling record of wasteful spending by the Rudd and Gillard governments further emphasises the need to curb unnecessary expenditure.  Additionally, the Coalition Senators do not support additional borrowing, as proposed by Professor Warwick McKibbin in his evidence to the House Economics Committee:

The advantage of borrowing is that this does not directly reduce economic activity today, but spreads the cost of rebuilding over many decades into the future. The macroeconomic goal should be to reduce the negative effects of the disaster soon after it occurs. Only borrowing achieves this objective.

1.8        Borrowing and therefore increasing the federal debt level is not supported given alternatives in the form of costs savings.

Cost savings by reducing expenditure

1.9        Commensurate with evidence from by Mr Eslake and Professor Makin, the Coalition has previously identified some $2 billion in further savings measures.  These savings highlight the government’s reckless spending and their preference for continuing to do so, rather than pay closer attention to the economic affairs of the nation.

1.10      The coalition has previously called on the government to accept the following savings and deferral of spending and divert the money to the reconstruction and recovery effort:

  • Partially deferring water buybacks in the Murray-Darling Basin
  • Delaying funding under the so-called Building the Education Revolution (BER) programme
  • Redirecting the remaining funds from the Building Better Regional Cities programme
  • Reducing spending on the Automotive Transformation Scheme (ATS)
  • Further cuts in funding to the GP Super Clinics programme
  • Deferring funding from the Australia Indonesia Education Partnership
  • Discontinuing funding to the National Solar Schools programme
  • Discontinuing the Reward Payment for School Improvements programme
  • Discontinuing the Online Diagnostic Tools for Parents and Teachers programme
  • Discontinuing the Helping Our Kids Understand Finance programme

1.11      Additionally, it is noted with concern that the $5.6 billion reconstruction cost is but an estimate. This adds further weight to the argument for expenditure cuts as the levy would be fixed in legislation, severely limiting its ability to contribute to reconstruction should the costs rise.

It is clear to the Coalition that the proposed flood levy is unnecessary.

Conclusion

1.12      The Coalition is determined to end government waste and stop Labor’s growing list of taxes and therefore does not support the Bills proposing the introduction of the flood levy.

1.13      As outlined in this dissenting report, it is clear to the Coalition Senators that significant budget savings remain available to the government to assist in the cost of rebuilding, as supported by Mr Eslake and Professor Makin in testimony to the committee.

Senator Alan Eggleston
Deputy Chair

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