First look at devastation for Grantham residents
Residents of devastated Grantham will today get a look at what is left of their homes as police reduce their search for bodies.
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The floods have revealed financial vulnerability at state and federal levels.
WE RARELY know just where or when disasters will strike. What we do know is that in our wide brown land droughts and flooding rains are a normal part of our existence, but so too are cyclones and bushfires, even earthquakes. Almost every year natural disasters strain emergency services, destroy local economies and put intense pressures on social and welfare services.
Given big disasters are invariably never too far way, why is it that federal and state governments never seem to be financially prepared when they do hit, especially when their cost is so high?
Reserve Bank board member Warwick McKibbin estimates that the economic impact of the Queensland flood to the Australian economy could be about 1 per cent - or about $13 billion - of GDP. Post-disaster emergency support, community rebuilding and welfare assistance for affected Australians itself can run into billions of dollars over many years.
Yet unlike standing emergency services, infrastructure and co-ordination, governments' financial responses to disasters are, almost always, ad hoc. Immediate arrangements essentially involve throwing cash where the need is greatest, particularly for welfare.
In the recovery and rebuilding phase, there are often financial agreements between the Commonwealth and the affected states: federal-state arrangements in 2009 after Victoria's Black Saturday are a good example.
Immediate and longer-term disaster costs impose additional strains on already stretched government budgets. In widespread disasters such as the current floods, or catastrophic localised events such as cyclone Tracy in 1974, hits to federal and state budgets knock even the best-laid fiscal strategies awry.
Prime Minister Julia Gillard has said that the cost of flood recovery will not delay the return of the federal budget to surplus. Does this mean big savings will have to be made elsewhere, increasing pressures on resourcing other national priorities including welfare, health and hospitals, and education?
Most families try to put something aside anticipating unexpected household costs, severe illnesses, loss of jobs and other family calamities. Why can't our federal and state governments also put something aside for a rainy day?
The short answer is that they can - and without making radical structural changes to public finances. Both the Howard and Rudd/Gillard governments established huge dedicated investment funds whose returns support so-called nation-building projects, such as constructing and renovating national infrastructure. These include the Building Australia Fund for transport, water, communications and energy, the Health and Hospitals Fund, and the Education Investment Fund. The founding capital for these three specialised funds was drawn from past federal budget surpluses and, as at September 30 last year, these funds had almost $20 billion of assets between them.
Genuine, as opposed to politically motivated, nation building includes reconstructing existing infrastructure and local economies struck by natural disasters. Given the incipient success of these existing investment funds, what could help considerably in spreading the financial burden of relief is a Disaster Response and Recovery Fund to complement these other nation-building reserves.
Such a fund also would initially be capitalised from the federal budget, and its investment earnings systematically topped up by annual appropriations.
Recognising that states are responsible for much of the damaged infrastructure, there also should be annual co-contributions by state governments based on their share of population, and adjusted for their risk of, and assessed readiness for, disasters such as floods and bushfires.
Assuming a total capital pool of $15 billion, a 5 per cent rate of return would mean a minimum of $750 million a year readily available for national disaster response, before any other funding is diverted or borrowed to meet the need. Uncommitted funds in any one year would be rolled over. While starting such a fund in a time of budget deficit would be tricky, surplus budgets easily could sustain it in the long term.
Dedicating mandatory portions of any privatisations, revenue windfalls and budget underspends could add to the kitty, as could trimming the costs to taxpayers of infrastructure projects such as the National Broadband Network.
There's no guarantee that such a fund always could absorb the full cost of disasters on the scale of the current floods in Queensland and Victoria or the Black Saturday bushfires. Nor should it remove the private responsibility of individuals and businesses to insure against them. But it could help significantly in spreading the financial and economic risks of responding to sudden natural disasters, minimising unplanned spikes in government budgets and damage to the wider economy in responding to them, and reassuring the Australian public that federal and state governments are as ready as they can be whenever disaster strikes.
As soon as the floods start to recede is the best time to start planning for future rainy days. We never know just when they will come, but we know with certainty that they will.
Terry Barnes was a senior adviser to the Howard government and a former federal public servant. He was involved in co-ordinating disaster responses.
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