Temporary levy to finance infrastructure reconstruction after a natural disaster

Context

Due to the cumulative effects of Cyclone Yasi and widespread flooding (December 2010 – January 2011), 99% of Queensland was declared a natural disaster zone.
The total damage bill arising from the flooding was over AUD10 billion in property and infrastructure losses, in addition to AUD30 billion due to the flow-on effects to productivity and the Australian economy.
The cost of rebuilding infrastructure was estimated at AUD5.6 billion.

Problem

The cost of the post-flood clean-up left the Queensland government with a large budget deficit and limited fiscal space to finance the rebuilding of infrastructure.
The Federal Government reallocated AUD1 billion by delaying major infrastructure projects around Australia and a further AUD2.8 billion through spending cuts.

Stakeholders involved

Australian Federal Government
Queensland Government
Queensland Reconstruction Authority

Innovation

The Federal Government imposed a one-off levy applied in the 2011–12 financial year, to raise AUD1.8 billion for infrastructure financing.[1] Those who were affected by the floods were exempt from the levy.
The Federal Government bore the cost of rebuilding infrastructure, freeing up state financing to provide other forms of assistance to those affected.

Timeline

Results and impact

AUD1.8 billion (USD1.39 billion) was raised through the levy, accounting for one-third of the infrastructure rebuilding costs.
The government revised the terms of the Natural Disaster Relief and Recovery Arrangements to ensure state and territory governments take out disaster insurance or establish an equivalent fund, to secure certain insurance coverage and limit direct access to federal funds.
A new reconstruction authority, Queensland Reconstruction Authority (QRA), was set up to coordinate the rebuilding program in 60 flood-affected communities.
The National Strategy for Disaster Resilience was released in 2011 to acknowledge the increasing severity and regularity of disasters in Australia and the need for a coordinated, cooperative national effort to enhance Australia's capacity to withstand and recover from emergencies and disasters.

Key lessons learnt

Regulatory: There was an identified need for action to reform the existing insurance and regulatory regime in light of an increased natural disaster threat.
Governance: The funding did not deal with the prevention of a future event. From a fiscal perspective, simply acting after an event rather than addressing mitigation and resilience is not ideal. The establishment of QRA demonstrated the commitment to advocate for better resilience in design / planning.
Governance: Effective communication assisted in addressing heightened public concerns as to whether the levy is a one-off government charge or whether citizens will be required to pay each year.

[1] A levy of 0.5% was applied to taxable income between AUD50,001 and AUD100,000 and 1% of taxable income above AUD100,000. Individuals with taxable income below AUD50,000 and those affected by the floods were exempt from the levy.