January 28, 2011 / 7:15 AM / 8 years ago

Australia's floods bill climbs, takes toll on PM

CANBERRA (Reuters) - Australia’s floods disaster piled more pressure on government finances and the prime minister on Friday, after the hardest-hit state of Queensland cut its economic growth rate by more than half and confirmed a sharp slump in coal exports.

Roofs of houses are visible above flood waters west of Brisbane January 13, 2011. REUTERS/Tim Wimborne

The mining state of Queensland’s assessment highlighted the challenges facing Prime Minister Julia Gillard, who is struggling to win public support for her recovery package, which included a new flood tax announced this week.

Gillard, stung in the past by accusations of wasteful spending, faces a major challenge in leading the economy out of one of its biggest natural disasters, after floods swamped the eastern seaboard, killing 35 people, crippling coal mines, ruining crops, damaging roads and railways and destroying homes.

“People have suffered enough without needing a new tax,” opposition leader Tony Abbott said, seeking to tap into what appears to be a sour voter reaction to the new impost.

Underlying the scale of the task, the Queensland state government cut its 2010-11 (July/June) growth forecast to 1.25 percent from 3 percent before the floods, and estimated that the damage to that state alone would top $5 billion.

It estimated the floods, receding in Queensland but still a threat in some parts of southern Victoria state, had removed about 15 million tonnes of steelmaking-coal exports, or about 5 percent of global exports, from the world market.

Queensland makes up a fifth of Australia’s A$1.3 trillion ($1.29 trillion) economy and produces 90 percent of its exports of steelmaking coal. The state said some damaged coal rail lines were not expected to return to normal for “some time.”

“We can’t recover as quickly as possible from a devastating, catastrophic disaster like this without having to take some hard decisions,” Queensland Premier Anna Bligh told reporters as she announced a revised state budget in the wake of the floods.

But her treasurer, Andrew Fraser, said recent rail and port expansions meant the coal industry could recover export tonnages in the 2011-12 financial year, with a flood-related surge in world coal prices set to unwind as supply normalizes.

The flooding has driven contract prices for coking coal as high as $225 per tonne for the first quarter of 2011, compared to $209 per tonne in the fourth quarter of 2010.


Gillard’s temporary flood tax, to raise A$1.8 billion ($1.78 billion) for reconstruction, came under fire on Friday from her own Labor Party as well as business and voters, including a fiery exchange between her and a talk-back radio host.

Even the Labor government in Australia’s most populous state of New South Wales questioned the prime minister’s the tax, which retailers fear will further dampen consumption this year.

“The Commonwealth (government), before they lock this levy in stone, may do well to consider some fine tuning,” said New South Wales Premier Kristina Keneally, adding Sydney already faced higher living costs than elsewhere in the country.

Gillard may also struggle to push her new tax and other flood-recovery measures through parliament without changes, after pivotal independents and Greens MPs withheld full support and called for negotiations on parts of the package.

The prime minister did a series of radio and television interviews to sell her floods package on Friday, and urged Australians to pull together to help with the country’s worst natural disaster in economic terms.

She said she would hold talks with the Greens and independents, whose support is crucial for the floods package to pass, but said she was determined to pass the package unamended.

“I will brief the independents. I will of course talk to the independents, but I am determined to get this package through,” she told Melbourne radio in an often testy exchange.

But an initial television station phone-in poll from 4,500 viewers on Friday found 93 percent opposed paying a flood tax, while online bookmakers sportsbet.com.au said odds for Gillard to win another election dipped from A$1.67 to A$1.53 for a A$1 bet after the new tax was announced.

Treasurer Wayne Swan said the floods would lead to a brief 0.25 percentage point spike in headline inflation in the March quarter and that the government remained committed to its plan to wipe out the budget deficit by 2012-13.

“As awful as these floods have been, they haven’t knocked the Australian economy off its longer term course, and they haven’t altered the longer term challenges we face, particularly the mining boom mark II,” Swan said.

Queensland cut its state economic growth forecast for 2010-11 but raised its 2011-12 forecast to 5 percent from 4.25 percent, reflecting the rebound expected from reconstruction.

Economists have predicted the national damage bill from the floods to top A$10 billion, with recovery costs to be shared among national and state governments, insurers and companies.

Reporting by James Grubel and Rob Taylor; Editing by Mark Bendeich and Jonathan Thatcher

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