The last disaster levy?


On March 22 the federal government finally passed the flood and cyclone levy, a one-off tax to help with the reconstruction of parts of Australia affected by recent natural disasters. The Julia Gillard Labor government expects the levy (formally known as the Natural Disaster Relief and Recovery Arrangement – NDRRA) to raise $1.8 billion.

The levy will apply to people on incomes of $50,000 and above, with the exception of of those directly affected by natural disaster. For wage earners in the $50,000-60,000 bracket, it will work out to roughly $1 a week over a year.

The NDRRA, which was opposed by the federal Coalition, could finally pass in the Senate after the government agreed to conditions and amendments put forward by independent Senator Nick Xenophon. Xenophon would support the bill only if the government included a requirement for states and territories to have independent audits of their insurance to ensure that they have sufficient coverage for a natural disaster.

If the insurance arrangements are assessed as insufficient, the Commonwealth auditor general can propose changes, and if these are not carried out within a certain time, then the amount a state or territory can be reimbursed under the NDRRA can be reduced.

When the Gillard government accepted Xenophon’s amendments on March 3, Xenophon stated: “I was only willing to support this levy if I could be sure it would be the last disaster levy Australian taxpayers ever need pay ... with these changes to federal disaster relief funding, it should be.”

Insurance fears

Xenophon also told reporters: “Even if premiums go up as a result of these recent natural disasters ... the advice I’ve had is it could go up 15-20%. That is still a lot cheaper than a $5.8 billion bill.” After the recent earthquake and tsunami disaster in Japan, however, this advice may prove to be a serious miscalculation of both the capacity of large global insurance firms and the extent of future disasters here and abroad. While it is still too early to say, insured losses in Japan were initially estimated at between US$15 billion and US$35 billion.

If business supply chain losses are included, the total could easily exceed US$70 billion, making the disaster one of the biggest losses ever for the international insurance sector. Insurance giant Lloyds of London estimates claims in Japan of at least US$125 million (on top of US$425 million this year already). The Australian-based QBE insurance broker is Lloyds’ second largest international underwriter.

In the North Atlantic, the traditional hurricane and storm season is yet to begin. Weather experts in the United States are predicting an above average hurricane season, including possibly up to five major hurricanes.

According to one Lloyds underwriter quoted in the March 21 Sydney Morning Herald: “There is a whiff of fear spreading throughout the industry, and when that happens – and it doesn’t happen often – it means everyone takes a different view of risk and starts charging what they think the market should charge, while others simply withdraw from the market”. Uncertainty over climate patterns and the likelihood of intense weather events created by human-induced climate change are likely to turn this “whiff of fear” into a stench in coming years.

Home owners hit

Already the experience in Queensland has been one of insurance companies callously treating home owners affected by flood or cyclone – through both outright rejection of claims and shoddy and slow assessments. For many who have lost everything and have yet to receive any substantial state or federal assistance, this is the last straw. The slow recovery process and insecure financial future are taking a huge toll on many communities.

On March 23, the day after the NDRRA was passed, there was not a single mention of the levy in the state’s main daily paper, the Courier Mail, even though the levy is ostensibly meant to help those worst affected in Queensland. The paper did, however, carry an article on a recent Newspoll survey on the financial state of disaster victims, which concluded that 900,000 people – or about 28 percent of the state’s population – have been financially stressed since the January natural disasters. The survey also noted that some 500,000 people have already been forced to access their superannuation to cover weekly living costs.

While Prince William has been and gone, many flood and cyclone victims across Australia are still left with shattered lives to rebuild and wondering when and how any real assistance will come their way. Unfortunately for them and the rest of us, the events of January 2011 are not going to be a once off or a one in 100 years event. With Labor and the Coalition continuing to dilly-dally over the climate change crisis, it is going to take a mass campaign for real, immediate action to make a difference.

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