The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

23 January 2011

NO.001

Treasurer's Economic Note

My first economic note for 2011 comes in the wake of the tragic floods that have seen so many Australians affected, and nowhere more so than in my home state of Queensland. The footage we've seen on our screens has been almost beyond belief, and I know the thoughts of all in our community are with those who have lost loved ones and whose lives have been disrupted. But while we struggle to understand the magnitude of the destruction we've seen, we're also moved by the display of community spirit we've seen in response to the devastation. The way people have sprung into action to help those in need has been truly breathtaking – people pulling up their sleeves to help not just family and friends whose homes and businesses have been affected, but often complete strangers. Donations from the Queensland and Commonwealth Governments together with those from individuals and businesses all over the country have seen the Queensland Premier's Flood Relief Appeal so far raise over $135 million. And it's clear that people just want to help in whatever way they can – with initiatives like Baked Relief springing up in response to the community's desire to support those people whose lives have been touched by the floods, and the men and women who are doing such a great job with the clean-up. Seeing the compassion and generosity of people from all wakes of life, and from all parts of the country – I'm hard pressed to think of times when I've been more proud to be an Australian.

Magnitude of the Floods

There is no doubt the recent floods will rank as one of the most costly natural disasters in our history – with the economic toll surpassing past tragedies like the Victorian bushfires and Cyclone Tracy. Of course we've also heard a lot of recent comparisons to the 1974 floods, and while we were all relieved when water levels in Brisbane didn't hit the same peaks of a generation ago, the truth is the impact of these floods will strike both the Queensland and national economy a lot harder.

Part of this reflects the fact that while the 1974 flood mainly affected Brisbane, this time around they've affected almost everyone in Queensland, with three-quarters of the state declared a disaster zone. And it's not just Queensland – we've seen the floods wreak havoc across parts of Victoria, New South Wales and Tasmania. The physical damage and clean-up will be worse too due to the dramatic growth in the size and density of Queensland's population, particularly in the south-east corner. Since 1974, the populations of both Brisbane and Queensland have more than doubled. Housing density has also increased given the greater significance of medium and high density housing. So while the state's whole population in 1974 was just 2 million, more than 3.1 million people have been affected by the latest floods. At this point we already estimate some 26,000 homes have been affected by the floods in Brisbane, and about 3,000 in Ipswich. This compares to 6,700 Brisbane homes and 1,800 Ipswich homes that were affected by the floods a generation ago.

Economic and Fiscal Impact

While it's still too early to quantify the impact with any certainty at this stage, I'll be sketching out some preliminary estimates of the economic and fiscal impact of the floods next Friday, in a speech at the CEO Institute Annual Conference in Brisbane. There's no question that the economic impact of these floods will be enormous. Queensland's rapid development has meant that its economic performance has a much bigger influence over our national economy. The state now contributes around 19 per cent to our national output (up from 14 per cent in 1974) and although the full impact won't be known for some time, obviously the hit to our economy will be much larger than 1974 and much larger than other natural disasters in our memory.

One of the biggest casualties is likely to be our coal exports, with many mines shut down in big coal mining regions like the Bowen Basin, and supply chains severely hampered. While this will be partly offset by higher prices, the loss of production will be hit much harder. To give you a sense of this impact, Queensland produces around 80 per cent of coking coal in Australia. Coking coal itself contributes around 10 per cent to Australia's exports, and coking coal exports contribute around 2 per cent to GDP. Of course we've also seen the devastation that the floods have caused to our crops, and the heavy impact on other industries like tourism, retail and manufacturing – especially with the disruption to the big urban centres like Brisbane.

There's a massive task ahead to rebuild the communities, homes, businesses and infrastructure destroyed by these floods, and this rebuild effort will add to GDP again in time. This recovery will throw up a range of challenges in terms of economic capacity, which will have implications for how quickly the rebuild can be done. For consumers, we'll also inevitably see a spike in prices at the checkout, mainly from fruit and vegetables. While this is likely to be temporary, it will no doubt take a toll on family budgets for some time.

The exact impacts of this epic disaster on our budget will be accounted for in time, but there's no doubting the final tally will be very significant. Fiscal responsibility has always been a hallmark of this Government and the way we approach this situation will be no different. We are determined to do all that we responsibly can to throw our support behind the Queensland people through this devastating time, but at the same time we have to do the right thing by the nation's economy. The enormous task ahead of us will require difficult spending cuts in our budget, and we're working through all the options – including a temporary levy. We've seen levies used in the past to fund programs such as the gun buyback scheme, worker entitlements after the collapse of Ansett Airlines, and assistance packages for the dairy and sugar industries. It is just common sense to keep all the options on the table as we consider how the Commonwealth Government will help to rebuild Queensland, and how we will fund that.

Amid the significant cost the floods are having on our communities and our country, it's important to remember that the fundamentals of our economy remain strong and our future remains bright. Jobs numbers from just over a week ago are a useful reminder that we still have one of the best performing economies in the world. The labour force figures showed the unemployment rate fell from 5.2 per cent to 5.0 per cent in December, and confirmed that 2010 was a record calendar year for job creation in this country. In the past 12 months, we've seen 364,000 jobs created, with over 80 per cent of these being full-time positions. The strength of our jobs market can give us confidence about our country's economic outlook as governments, communities and businesses begin the long task of rebuilding from the floods.

Our latest set of good jobs numbers continues to set us apart from the rest of the developed world. Many of our peers continue to struggle with the effects of the global financial crisis after falling into recession, with unemployment rates near double digits in the US and Europe. For a good analysis of the economics profession in the lead-up to the GFC, I'd recommend this recent article by Robert J Shiller. It points to the importance of discussion, saying "part of the process of pursuing the inexact aspects of economics is speaking honestly to the broader public, looking them in the eye, learning from them ..."

Assistance for Flood Victims

I've been really moved by the stories I've heard from the victims of the floods. Whether at the RNA Showgrounds evacuation centre, out in Rocklea or in Grantham, I've met people who have little left than the clothes on their backs and people whose workplaces have been flooded and are worried about putting food on the table. The Commonwealth Government is giving people who have been affected a hand through these tough times by providing initial emergency assistance to help them get back on their feet. Already, we've paid around $227 million in Australian Government Disaster Recovery Payments to people who have been affected by the floods. This is a one‑off payment of $1000 for adults and $400 for each child to help people cope with the immediate aftermath of the disaster. Over the coming weeks, many people are going to find that they can't work for one reason or another because of the floods. We've activated the Disaster Income Recovery Subsidy at the rate of the Newstart or Youth Allowance payment for up to 13 weeks for people who have suffered a loss of income as a result of the flooding and severe weather across every mainland state. You can find more information on Commonwealth Government assistance for flood victims at the Australian Government Disaster Assist website. And these initial measures are only the beginning. Over the coming weeks, months and years, the Commonwealth Government will be investing billions of dollars to get Queensland back on its feet.

All sections of our community are pitching in to help the flood victims – businesses, unions and individuals alike. On Monday, I'm chairing the first meeting of a new Business Taskforce that brings together business leaders from a range of industries to mobilise and coordinate the efforts of business. The taskforce is going to help drive corporate donations, coordinate in-kind donations and bring together some of the best business minds in the country to help Queensland business recover from the disaster. The union movement has also answered the call – raising over half a million dollars and offering other kinds of support as well. We've already seen so many families and businesses put their hands in their pockets to donate to the Queensland Premier's Flood Relief Appeal, and I'd encourage everyone to consider giving just that little bit more – whether it is a little or a lot, it all counts.

The Task Ahead

The impact of the floods on our community and our economy is going to be felt for months and years, not days and weeks, and those affected by these tragic events can rest assured that our Government is in this for the long haul. The way Australians have pulled together throughout the crisis has been truly inspiring, and we're going to need every section of the community and government working together to rebuild these communities and get our infrastructure back to what it was before mother nature took her devastating toll. There's a massive reconstruction effort ahead of us, but I know Australians are equal to the task – not only because we have the benefits of an economy with strong fundamentals, but because the strength of the Aussie spirit always shines through brightest when we face our darkest days.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 23 January 2011

www.treasurer.gov.au