Julia Gillard to push ahead with flood levy plan despite Opposition threats to block move

Prime Minster Julia Gillard has announced the Government will introduce a special flood levy to pay for that she says “may prove to be the most expensive natural disaster our nation has ever seen”.

The Government will put in place a new levy on salaries of 0.5% from July 1 on people earning $50,000 to $100,000. Those earning over $100,000 will pay an extra 1%

The levy will be in place for the 2011-12 year and will raise $1.8 billion. 

“Under this levy, someone who has an income of $60,000 will pay just under $1 extra per week. A person earning $100,000 per year will pay just under an extra $5 per week,” the Prime Minister said.

The new levy is just one part of a Government package designed to help pay for the flood reconstruction costs – estimated to be about at least $5.6 billion – and keep Labor’s promise to get the Federal budget back in surplus by 2012-13.

Spening cuts and new training iniatives will also be part of the $5.6 billion package the Government has announced to pay for the flood disaster recovery. The package will also include cuts to infrastructure spending.

Gillard says that while Australia’s economy is strong, growing capacity constraints meant that money needed to be found immediately to pay for the recovery efforts.

She described borrowing to pay for the flood recovery as a “soft option”.

“In a growing economy, we pay as go.”

Gillard also revealed Treasury expects the floods to wipe half a percentage point off GDP growth. 

But the Opposition has slammed the levy as “dumb” and says it will try to block the tax when it comes before Parliament. That means Gillard and her team will need to convince the independent MPs to back the levy.

Shadow Treasurer Joe Hockey says the increase would come on top of rising costs for food due to the floods, and tax increases around alcohol, tobacco, power and minerals.

“All of those things on top of actual increases in prices of food and staple products for the family and then the government imposes a levy on top,” he told ABC Radio.

“It’s just plain stupid, dumb stuff.”

Reserve Bank board member Warwick McKibbin also slammed the levy plans, saying the new tax would hurt the economy at the same time the floods were weighing on growth.