Opening Statement by ACTU President Ged Kearney House of Representatives Standing Committee on Economics Inquiry into the Flood Levy Bills

Opening Statement by ACTU President Ged Kearney
House of Representatives Standing Committee on Economics Inquiry into the Flood Levy Bills
Parliament House, Canberra
Wednesday, 16 February 2011

Thank you for the invitation to address this inquiry today. It is fundamentally important that working Australians have a voice in the major economic, social and political debates that take place at a national level, so we welcome this opportunity.

The ACTU comes to this inquiry with a position of support for the Government’s plan for a progressive, one-off levy which exempts flood victims and the majority of workers to help cover the $5.6 billion cost of this summer’s devastating floods, and maintain existing Government policy priorities.

Like all Australians, unions watched with numb shock and disbelief as the floods tore through regional Queensland and Brisbane in January. And then, at a much slower pace, but equally devastating to the lives of northern Victorians later in the month. Tragically, lives have been lost. Homes have been destroyed. And livelihoods will take a long time to recover.

As an aside, can I acknowledge that the Australian labour movement responded magnificently, raising well over half a million dollars in direct donations to the Queensland Premier’s Flood Appeal, but also contributing in countless other ways to help both their members and non-members who have been impacted.

It was immediately clear that this was a natural disaster of almost unprecedented proportions, and it would require a national, governmental response of enormous magnitude. It would require considerable Commonwealth Government spending, and this would have an impact on the Federal Budget.

Whatever the monetary estimate of the costs of reconstruction from the floods, the economic cost will far exceed that amount. The impact on agriculture and industry will constrain GDP growth in the short run and cause a spike in inflation. But the injection of spending into the economy for the reconstruction may boost growth down the track.

But let us be in no doubt of the fiscal context for the government response to the floods. Notwithstanding the impact of the floods, Australia’s economy is strong and outperforming all of its peers in the developed world.

Equally, the Commonwealth Budget position is also strong. Prior to the floods, it was projected that the deficit would be just 0.8% of GDP in 2011-12. No other major economy is planning to return to surplus as early as Australia, and importantly, the deficit is not putting any strain on the private economy.

A range of economists and interest groups have suggested that deferring the deficit reduction plan and returning to surplus a bit later would have a negligible impact on the economy. Australians understand that a modest deficit is an entirely reasonable way of funding nation-building infrastructure.

However, unions also accept the government has made a concrete commitment to a fiscal strategy that will see the Federal Budget record a surplus in 2012-13.

Unions also believe it would be detrimental to Australia’s long-term prosperity for the extra costs of the floods to result in a substantial reprioritising of important Government spending initiatives including investment in infrastructure, or cutbacks to recurrent expenditures on health, education and other services.

As a nation, we need to take collective responsibility for each other’s welfare. Times of natural disaster highlight this basic principle even more. A progressive levy that exempts low-income earners was an option the ACTU urged the Government to consider in late-January.

In this context, the ACTU offers its support to the government’s plan for a progressive one-off levy which exempts flood victims and the majority of wage earners to help cover the $5.6 billion reconstruction cost, and maintain existing Government policy priorities.

The ACTU supports the $1.8 billion levy for the following reasons:

(1) It is temporary and one-off, and as I have already outlined, is a far better alternative to deep and far-reaching spending cuts. In its cheap and crass attempts to exploit the floods for political gain, the Coalition, for instance, has proposed spending cuts that are misguided and detrimental to the nation.
If we are going to have a debate about spending cuts, it must be in a carefully considered process. There are areas of “middle class welfare” where programs need to be reviewed. For instance, superannuation tax concessions for high income earners. Savings could be made by taxing super contributions at an individual's marginal tax rate minus a fixed offset, rather than the current 'flat tax' of 15% for everyone earning over $37 000. The current system delivers massive benefits to high income earners. Another area is the 30% private health insurance rebate.

(2) It is fair. Not only are recipients of flood-related payments exempted, but it only applies to people earning more than $50,000 – those who can most afford it - which immediately means about 50% of workers are exempt from having to pay the levy. The progressive structure means that even high income earners will not pay 1 per cent of their total income; that only applies on the portion of their income that exceeds $100,000. And that affects less than 10% of workers. What this means is that a full-time worker earning average wages of $65,000 will be liable for a levy payment of $1.45 a week, while someone on double that ($130,000) will pay $10.61 a week.

(3) It will raise funds for important infrastructure programs, such as the replacement of roads and rail lines, that must be rebuilt in any case, but will also drive future economic and productivity growth in the affected regions. The funds raised will not be “frittered away”.

I would like to make one final point, and it’s an important point.

As I said earlier, as a nation, we need to take collective responsibility for each other’s welfare, particularly in times of disaster.

A progressive levy on wage and salary earners is consistent with this principle – but it should also apply to the corporate sector. The costs of the post-flood reconstruction needs to be shared by all sectors of the Australian economy, not solely borne by households.

Just today, BHP Billiton has announced a super profit more than $10 billion for the first half of this financial year. Earnings from iron ore – that is earnings from Australia’s natural resources – tripled.

With companies like BHP Billiton reaping super profits of more than $10 billion in half a year, there is no doubt corporate Australia can afford to contribute its share.

If a super profits tax on resources was in place today, would we have even needed a flood levy?

I leave you with that thought. Thank you for your time.