Australia PM says flood levy on cards, surplus plan stays

Australian Prime Minister Julia Gillard won support today from an independent propping up her minority government for a tax levy to pay for flood reconstruction, but looked headed for a budget fight when parliament resumes next month.
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Updated on Jan 21, 2011 12:09 PM IST
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Reuters | By, Canberra

Australian Prime Minister Julia Gillard won support on Friday from an independent propping up her minority government for a tax levy to pay for flood reconstruction, but looked headed for a budget fight when parliament resumes next month.

Gillard said she would not scrap plans for a 2012-13 budget surplus, despite calls from business, unions, economists and a crucial crossbench senator to put eastern seaboard rebuilding over her government's tarnished economic and political record.

"By 2012-13, our economy will be running hot and when your economy's running hot, that's the right time to be having a budget surplus and saving for the future," Gillard told Australian television late on Thursday.

"There will be spending cutbacks and there may also be a levy," Gillard said, warning also that the rebuilding task now facing the government and lost production would also hit the GDP measure of the country's A$1.3 trillion economy.

Gillard's conservative opponents attacked the levy idea as unnecessary and demanded the government wind back stimulus spending meant to combat the world downturn and delay building of a A$36 billion government-backed broadband.

One of three lower house independents propping up Gillard's government said he supported a disaster levy, even though it could bring a voter backlash ahead of parliament's Feb. 8 resumption and raise political tension for Labor.

"At $1 a week from each person we would raise approximately $1 billion a year," lower house kingmaker Tony Windsor said.

But upper house Senate independent Nick Xenophon said economic circumstances had changed since Gillard went to last year's election promising debt-wary voters to bring the budget to surplus, and Labor should reconsider its two-year timetable.

"I'm not sure why the government would want to put itself in an economic straitjacket," Xenophon told ABC Radio, foreshadowing a budget battle when lawmakers returned.

Australia's A$1.3 trillion economy remains on track to grow by a robust 3 % this year, despite consumer sentiment taking a 5.7 % hit in January amid wall-to-wall media coverage of the flooding disaster.

Flooding blamed on a Pacific La Nina wet weather pattern has devastated huge areas of Australia's eastern seaboard, killing at least 25 people, submerging parts of the nation's third-largest city, shutting vital coal mines and destroying crops.

A levy could take the form of an addition to the 1.5 % Medicare levy backing public health and hospitals, and which raises A$10 billion ($9.9 billion) a year.

Rebuilding estimates from banks and economists have mostly ranged from around A$3 billion to A$10 billion, but ANZ bank said it could come in at around A$20 billion when waters subside and the scale of devastation becomes clear.

Chief economist at Westpac Bank Bill Evans said the projected $3.1 billion surplus for 2012-13 was now in jeopardy and backed a peak business lobby and trade unions in saying the government should put recovery ahead of the surplus.

"At the moment, the standard of living of that region is much more important than the budget surplus," Evans said.

In a sign of improvement, Queensland's crucial coal mines are now operating at full permanent staffing, raising hopes that the world's largest coal exporter, accounting for two-thirds of global coking coal trade, will quickly recover.

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