Jan 27, 2011

What’s a 1.8 billion levy look like?

We'll all be rooned by the Great Big New Tax Levy - it will put pressure on the retail sector, it's a mateship tax, it will hit deman

Possum Comitatus — Editor of Pollytics

Possum Comitatus

Editor of Pollytics

We’ll all be rooned by the Great Big New Tax Levy – it will put pressure on the retail sector, it’s a mateship tax, it will hit demand at a vulnerable time, first borns will die etc etc. Those were the lines earlier today from a variety of usual suspects on the governments now proposed $1.8 billion flood levy.

That’s all very good and well, but this is what 1.8 billion looks like in the context of the wider economy.


It makes you wonder why the government even bothered. Treasury’s revenue estimates are usually out by more than that every year – so don’t be surprised if, ultimately, the levy turns out to have not been needed to bring the budget back into surplus in 2012/13.

On the funny side, such a development might make for an amusing mea culpa down the track, with a refund of the levy being an option for the 2012 budget (partially similar to the way the East Timor Levy was proposed but never triggered, as eventually it wasn’t needed). Though such a refund would bring with it an interesting problem best put by @robcorr in response to the refund suggestion:

The politics of that aren’t great. “Here: free cash for everyone except flood victims and low income earners!”

He’s spot on! You can just picture it now 😛

So saying, many words will be written about about the importance/depravity (choose your side) of this 1.8 billion tax. Like most things in politics, the hype probably won’t match the reality. This is 1.8 billion dollars in an economy over 1 trillion dollars wide. Take the inevitable silliness from both sides with a little perspective and a grain of salt.

The real story of today is that the cost to the federal budget of rebuilding from the floods is much smaller than previously guessed at, with the the government putting it at 5.6 billion – let’s call it 5 to 6 billion. The broader economy too is projected to power along. Even though GDP growth is projected to fall from 3.25% to around 2.75% as a result of the flood, expect that to be a conservative projection where the GDP hit is only temporary.

We usually underestimate the growth effects of our investment surges – such as we’ve done for, say, just about every one we’ve ever had, including the most recent 2004-2007 surge. We are heading into a large investment surge over the next few years – with much of it already starting to be deployed.

So while the government is trying to get on the right side of the macroeconomic textbook ledger, at least in terms of not exacerbating existing and emerging capacity constraints (the ones that are giving us interest rate rises) by not borrowing to fund reconstruction, but reorganising existing funding and pulling 1.8 billion out of the economy and redeploying it – it seems to be more for the purposes of creating a political argument considering the actual size of the numbers involved.

But that’s good news – the floods arent costing nearly as much as some may have earlier feared. An Australia where arguments are had over small numbers for the reconstruction bill is a luxury compared to an Australia where we were arguing about reconstruction costs much, much larger.

UPDATE: Christopher Joye over at The Drum has a thoughtful piece on the economics of it all that’s worth reading

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38 thoughts on “What’s a 1.8 billion levy look like?

  1. John

    It’s not the size of the levy that I have any issue with, or the structure of the thing. It’s the timing: To my mind, reconstruction should be (initially) deficit funded and the levy be brought in for 2012/13, well after any negative impact from the floods/cyclone/bushfires have finished. The obsession with surpluses in federal politics is a fetish, and a harmful one at that.

  2. craig.thomler

    Let’s look at the impact of the flood levy on the broader economic conditions of Australia. There’s been claims from some economic commentators that the flood levy will offset at least one, and maybe two 25 basis point rises in interest rates.

    Considering that roughly 33% of households in Australia have a mortgage, if there was no flood levy that 33% would have borne the cost of at least one interest rate rise of 25 points.

    Instead we’re now spreading that cost across around 60% of households (excluding low income and those affected by the floods).

    As a mortgage holder, I’m actually better off paying the flood levy than suffering a 25 point interest rise, so it’s a good trade-off for me.

    That said, personally I’m not impressed by the approach taken to sell the tax. The idea of Australians pulling together as a community has been hijacked by ‘the government will take care of it’ and creating a situation where organisations and individuals will fight bitterly for ‘their share’ of the levy, going hat in hand to an ever more powerful state.

    To me that’s another blow to any concept of Australian mateship and part of the long trend of the destruction of Australia’s community and democracy.

  3. westral

    $800 per year means around $16 per week, not much to ask to repair the infrastructure of three battered states. None of the levy funds go to individuals or businesses. Tony Abbott is against it because he is against everything,

  4. galeg

    I suspect that there are going to a large number of disappointed flood impacted people who seem to have the perception that the Levy will be going to them, when in fact it is to rebuild / repair infrastructure in the flooded areas.
    The money going to the flood victims will be the donations from all over Australia, but of course the distribution will take many months / years.
    One thing for sure is that many of us have since thoroughly checked our insurance policies, and modified as necessary.
    I also wonder what people who live on flood plains will do if / when they find their insurance companies will not now carry the risk into the future.

  5. Gillard ‘re-profiles’ the soft option | Unbridled Truth

    […] Steel, author of Pollytics, was quick to play up the triviality of the tax and berate its critics as unhinged fools. While he makes the point that […]

  6. Gorgeous Dunny

    [Add Labor’s interest rate hikes]

    The official interest rates are two points lower than when Howard departed the political stage.

    Though perhaps Bias is retired and is grumpy over his investment returns being a bit lower.

  7. Bobalot The Great

    The budget is about $300 Billion.

    1.8/(300+1.8) = Bugger all.

  8. Bobalot The Great

    It’s still less than 1% of the budget, or as like normal people like to say “bugger all”.

  9. Steve Annabelle

    What is obsession of comparing everything with GDP. You can make anything look small compared to that.

    A fairer comparison would be with the total budget, or more properly the total tax paid by individuals (as this is who is going to be paying the tax, sorry levy)

  10. cud chewer

    Yes, well its the political danger involved in the levy, versus the political danger of any alternative, isn’t it?

    $1.8B in extra cuts might start pissing off other interest groups.

    And while I agree there just isn’t a need for a surplus, sadly there is a political need.

    To be honest, if it were me, I’d have just quietly gone down the extra borrowing path – doesn’t show up in the surplus, just in the net debt figure.

    Oh.. and btw.. Possum? I’m feeling Pollytrend withdrawals!

  11. grantplant

    Me @ 25;

    [So there goes half one of your lattes a day.]

    If only it were that ‘horrendous’! I meant 1/2 of one *per week* of course.

  12. grantplant

    biasdetector @ 1

    I sniff your bias. You are broken hearted over being ‘slugged’ for $1.50 a week for 12 months. So there goes half one of your lattes a day.

    Yes I know it’s a bugger for a latte drinker like you. Still, stiff upper lip and all that mate.

  13. Taxing Tony

    […] would have raised more money than the Gillard's flood levy ($2.7 billion originally compared to $1.8 billion), and so presumably had a larger impact on the […]

  14. Much ado about $1.8 billion « The Loose Cannon

    […] the $1.8b raised through the levy is a drop in the GDP  bucket, as nicely visualised by Pollytics here. Forward budgetary estimates are usually out by about this much. So what’s a couple of […]

  15. Possum Comitatus

    Christopher Joye has a piece worth reading on the economics of the levy over at:


  16. caf

    biasdetector, your HECS repayments aren’t a tax. They’re repayments of your debt to the other taxpayers – a loan that was made with very generous terms in the first place, subsidising your double degree.

    Oh, and “Labor’s interest rate hikes” have actually been a net negative (the RBA cash rate was 6.75% when the Coalition lost power, and are 4.75% now). Not that they are directly influenced by the actions of the Federal Government, anyway.

  17. dreuphoniuman

    Bias D might be the only person in Australia who returned his $900.00 stimulus money.
    Or maybe he didn’t?
    Maybe he did not get the stimulus because he did not put in a tax return? Maybe he did. Credibility vacuum.
    Maybe he and his friends might describe a “popular tax” versus and “unpopular tax” ? Or maybe his very selective list making and arithmetic are evidence of another problem?

  18. Gos

    Great another tax.

    Not a tax, a LEVY

    This is not a tax. It is a levy. A levy is for a specific purpose.

    Don’t you listen to Tony?

  19. sickofitall

    @Ronin8317 – excellent point. Let’s start a list (from your rhetorical question, but let’s anyway):

    Rampant materialism
    Selfish and self-centred thinking
    Howard and post -Howard breakdown of community
    the forgotten distinction between ‘price’ and ‘value’
    the fear of the poor (much more insidious than racism)
    the drive for ‘success’, as defined by nobodies.

    Thats’ all I can think of, and I might be wrong.

  20. rhwombat

    My, biasD, we are an entitled little Young Liberal aren’t we? Perhaps you should consider a new pseudonym: bracket creep (or, as you would put it, bracket creap) has a nice ring to it. Slainte

  21. ronin8317

    How did Australia reach the point where a person earning over $100K a year is crying poor?

  22. sickofitall

    Labor is scared. the cowardice that they display (both Federally and in NSW) is disgraceful. A bunch of cowards, running from another bunch of cowards. The Liberal Party (currently) is a bunch of uneducated and dumb rabble. A good party should be able to smack the Opposition around – Tony Abbott, Tony Abbott! is the leader!! Instead, we’ve got Shorten, Arbib (the traitor) and the rest of the mediocre nobodies trying to work out what to do…

    And I can’t even say ‘Bring on the Election’ because the other mob will be worse!

  23. biasdetector

    Jen author
    What you fail to realise is that every year the is not a “tax cut” there is bracket creap. Which means every year of Labor now on will have an inbuilt tax increase.
    As for #12 I did a double degree, so yes I am still paying off my HECS and probably your wage too.
    Property in Melbourne in difficult to get a nice place for under 600,000 that equals close to 50, 000 per year in repayments
    Add Labor’s interest rate hikes
    Add Labor’s increased tax
    Take away the baby bonus (now means tested)
    Ad child care
    Add Gillard’s new tax
    Plus energy and water increases due to Labor’s policies
    Wife not working but did not work enough for the maternity allowance
    you get the picture
    and no cheesecake money
    Shame Labor

  24. calyptorhynchus

    Happy to pay the levy.

    Even happier if higher taxes on high income earners were made permanent.

  25. The Magical Liopleurodon

    Coalition supporters will cry bloody murder no matter what happens. If Labor had gone with deficit spending on this, there would have been screams about fiscal irresponsibility, economic vandalism etc, and now that this route has not been chosen, well it’s pretty much the same thing with a levy too. I wonder if they were equally furious when the Howard government issued it’s own levies, or Abbott’s proposed levy for his paid maternity leave scheme.

    A levy is a sensible proposition, but I suspect that Labor is still letting themselves be spooked by the Coalition on the issue of debt and deficit, which is why they won’t borrow to pay for this, and if last year should have taught the Labor party anything it is that it should not let it’s opponents define them or dictate to them. The political party setting the agenda is the one that is successful and gains support. I’m not sure that lesson has really sunk in however.

  26. Bobalot The Great

    I suspect nothing Biasdetector has posted resembles the truth. He’s got a wife and kids and earns $155k but still hasn’t paid HECS off…..really?

    He reeks of bullshit.

  27. jenauthor

    Biasdetector … if you earn enough to pay $800 — you should have paid your HECS bill in a couple of years.

    And I suppose you’re happy to accept heaps per month toward your health insurance, paid by people who don’t have it and earn less than $50,000 a year. Yep real balance there.

    I’d suggest you wouldn’t pay even half the $800. What, a couple of cups of coffee? You still get to have your cheesecake though.

    I love how loving and generous we are until someone says we’ll put your tax/levy up a minuscule amount. Those same taxes that have been progressively lowered by a phenomenal amount in the past 4 years, haven’t they?

  28. paul of albury

    So biasD, you’re on $155k a year and you’ll pay $800 levy, 1/2 a per cent of your gross. Maybe we’ll have to put the hat around. Or perhaps what you really need is a heart.

  29. Bobalot The Great

    You don’t deserve your pay if you can’t do simple maths.

    It’s 0.5% over 50k and 1% over 100k. So if you earn 100k, your extra tax is $250.

    You fail. Again.

  30. biasdetector

    your maths is way way way out
    I might not be in a situation to easy avoid tax like you… remember 1% of 100000 is 1000 dollars. My taxes probably pay your salary too, so I probably do need a brain.

    I hardly think the current government is in a position to responsibly spend any money at the moment ie pink batts BER

  31. Keith is not my real name

    “Does this mean I can get a refund from my optional donations to the flood victims prior to my forced donations?”

    You earn enough that this will cost you $800 a year and you ask this question?… you don’t need a tax avoidance scheme, you need an Accountant… or a brain.

  32. shepherdmarilyn

    They could save a cool billion by not locking up and hunting refugees.

  33. rhwombat

    biasdetector: “screeeeee”. Slainte

  34. thewetmale

    Indeed, it was only 2009 that Crikey had two winners in your “guess the deficit” comp because of a difference of 4.5 billion between the underlying cash balance and fiscal balance in that year’s budget. http://www.crikey.com.au/2009/05/13/richard-farmers-political-bite-sized-meaty-chunks-11/
    4.5 seemed pretty piddling then and yet now the Liberals would have us believe that 1.8 is significant.

  35. Bobalot The Great

    biasdetector’s life is going to end because he has to pay $1 a week.

  36. biasdetector

    Oh just a thought
    Does this mean I can get a refund from my optional donations to the flood victims prior to my forced donations???

  37. biasdetector

    Great another tax.
    Thanks Gillard, not only do I have to pay for my wife and children and others wife and children (through normal taxes, and now for the floods in Queensland. Tax rate with HECS will be 55% (Hong Kong max tax rate 16%). Does not count the marginal effect of losing the baby bonus now means tested (I pay for others instead).
    Think of all that wasted money for the Rudd Gillard Government and now they want MORE.
    Should cost me about $800/year
    I need to get into tax avoidance i guess

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