Friday, January 28, 2011

Flood levy's, public policy & the Australian spirit

Yesterday the Australian Government announced new flood reconstruction measures to be part funded by a new one year income tax levy, part funded by expenditure cuts or deferrals. You can find full details here. The PM's address on the issue is here.

In a comment KVD wrote:

This is very much off topic, but I just wanted to record my amazement and despair at the misunderstanding demonstrated by the public after today's "Flood Levy" announcement.
I am not asking for a comment on the economic outcomes, or possible alternative measures.

If you have time, have a look at the comment stream attached to

Just really - how does a government actually govern in the face of such basic public ignorance as to what is proposed?

KVD did not ask for a comment from me, but having read the comments, I could not resist. The vitriol in some of the comments is quite remarkable.

The problem with this one is that it involves complicated issues and has also been wrongly timed and badly packaged. I don't think that I would have spotted the bad packaging just from the PM's speech. It is only by comparing the speech with the comments that it becomes clear.

Donations vs Levy

In her speech, the PM tried to make a distinction between the donations intended to help individuals and the new package's objective of rebuilding infrastructure. Australians would, she hoped, continue to be generous.

Looking at the comments and listening to discussion, this may be a forlorn hope. Those who donated are querying why they donated when they are now going to have to pay. It is not good timing to announce a new tax when you are trying to get people to donate for what is apparently the same purpose.

The PM would have been better off delaying an announcement to allow more time for discussion. There should also have been a greater focus on explaining the relationship between levy and donations.

Queensland vs the Rest

Four Australian states were affected by the floods. The PM's speech notes this. However, the great focus on Queensland, the greater focus on Queensland in reporting, created a degree of public confusion and also triggered rivalry issues. Why should I pay to help Queensland? I am from flood affected Northern NSW. Why should I pay to help Queensland when we too have been affected?

These issues could have been better explored.

Fiscal Rectitude

The Government faced a particular problem, one partly of its own making, over the question of funding and the budget. The opposition has been hammering away at the need to bring the budget to surplus, to stop the great big debt truck. There is, Mr Abbott states, no justification for a levy. Reconstruction costs should be funded by spending cuts.

Itself locked into fiscal rectitude, the Government ended by beating its fists on its chest in a display of fiscal bravado. We will still bring the budget to surplus on the original timetable; we have cut or deferred two dollars in spend for every one dollar raised by the levy. This played right into the opposition's hands. If you can do that, the surely you can go that step further and thus do away with the levy altogether.

The real problem for the Government is that its approach confused two very different questions. The first is the nature of reconstruction assistance. What we are going to spend and why? How to fund it all is the second and very different question. The first is really the most important. However, in joining the two, the Government ensured that the second would dominate.  

You can see this confusion at in some of comments. Why must the Government keep the budget in surplus? Why can't it do what it did during the Global Financial Crisis? Alternatively, this levy is unnecessary, they should just cut more spending. This brings into play all the arguments around budget approaches, as well as specific measures such as the National Broadband Network.

It also brings into play discussion on specific spending cuts themselves. At the moment, the focus is on the green cuts, but there are quite a few others including industry and regional programs, as well as cuts to the National Affordable Housing program. Further, in the case of some regional programs, it appears that remaining funds will also be redirected to flood affected areas. So expect more trouble.

Short vs Long Term

Comments have also picked up a range of other issues including:

  • why should I pay for people who chose to live in flood prone areas or who fail to get insurance?
  • floods happen all the time. Shouldn't we adopt a long term approach?

Many of these types of questions, while often reflecting hip pocket concerns, are legitimate. The same type of issues arises with drought relief, for example. Here a key need is to distinguish between short and long term issues. We do need a long term approach, but we also have an immediate problem.


Personally, I am not opposed to a levy. However, I don't think that the way this whole thing has been done is especially good public policy.

As I drove back home this morning listening to the radio, the whole focus was on the need for Julia Gillard to sell the levy. I guess that, in a sense, captures the problem. Instead of discussing the best way of meeting a need, discussion will be dominated by funding.

In all this, KVD is right to point to the difficulties involved in getting new policies up in an age of instant reaction where reactions are driven by media presentation of issues. The problem is, at least as I see it, that Governments have not really learned how to manage the new environment, one that they have played a part in creating.

I may be naive, although I have had a fair bit of experience in the areas we are talking about, but I feel that sometimes you just have to allow time and provide information so that people have a chance to get their minds around issues. The most important thing is that people at least feel confident that Governments have at least thought things through.

I want to finish this post on a positive note.

I have been very critical of current approaches to public administration.

The most important conclusion that I drew from the floods was an enormous sense of reassurance and pleasure that our systems can still work. At all levels of Government, at the community and volunteer level, I actually thought that the floods were one of the most remarkable success stories that I have ever seen.

Of course there were mistakes. Yet the work done was, simply, bloody brilliant. I see the floods as a case study of what can go right, not wrong. I offer my personal congratulations to all those who strived.

There is a very good and dramatic book here. I can't write it, I am struggling to complete my current projects, but I wish someone would.      


Anonymous said...

Thank you Jim - that's an unexpected but most appreciated very clear summary.


Anonymous said...

I subscribe to the guy from australia and his FFT economic newsletter at he is saying this levy will be not good for us... that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.

I am worried about my financial future. Is anyone else nervous out there?

Jim Belshaw said...

KVD, I think that he is wrong. In macro terms, the levy is neither here nor there. The Australian economy has been softening; the levy may reduce demand; but the fundamentals remain the same.

Anonymous said...

Jim, that anon is not this anon.


(and i haven't read his link so don't know if I agree or not)

Jim Belshaw said...

Good lord, David. I should have realised. It's actually a spam comment, although I will leave it up until I have checked the site!