Friday, March 04, 2011


The deal the Government has had to do with Nick Xenophon to get the flood levy approved highlights a great deal of stupidity in public policy and discussion of it.

In summary existing Federal/State arrangements are that the Federal Government pays 75% of the cost of disaster relief. Xenophon has agreed to a levy for the Commonwealth share of this on condition to the rule being amended to the funds only being available if the state insures its risk.

First off we have Kenneth Wiltshire in the Oz bemoaning the fact we now have to pay the levy, writing in part;

Consider the proposed flood levy and the process of its introduction, which reveals all the flaws of our present system.


The result is that the taxpayers of Australia, including those who had already made voluntary donations to the flood appeals, will have to foot the extra bill for the levy plus the cost of the promises made to the Greens and independents.

And, given the Gillard government's appalling record in governance and delivery of infrastructure projects, there is no guarantee that payments from this levy will be administered without waste and corruption.

To make matters more complex, independent Nick Xenophon made his support for the levy conditional on the commonwealth forcing states to take out comprehensive insurance on their assets: a strange requirement that is a denial of the sovereignty of the states in the federation

If the Queensland government is reckless enough to neglect to insure its assets it should simply be held accountable by voters at the forthcoming election.

This spray is used to claim we need a new election because of the power being exerted by the Greens and independents. Let's ignore for a second the question of what programs the Government might have additionally agreed to, and go to the substance.

The first thing to note is that not one cent more of additional money will be spent by the Commonwealth because of the levy. It was always going to fund its share of the reconstruction. The levy does not increase, therefore, any risk of maladministration.

The second is the nonsense about voluntary donations versus the levy. These go to different things. Your voluntary donation helps individuals who lost houses, possessions and income. The levy rebuilds roads.

The third is the repetition of the claim that it was "reckless neglect" on Queensland's part not to insure. This ignores that the size of the Commonwealth contribution is based on the cost (they pay 75%) not on how much the Queensland Government can pay.

But it also ignores the facts as Anna Bligh outlined them on Q&A

These disasters without precedent in Australia's history. We've had floods before. We've had cyclones. But we've never had in any state of Australia all of them at once over such a large area in such catastrophic proportions. The disaster arrangements in Australia that have prevailed under all sides of politics for more than a decade - I think a couple of decades now, are a set of arrangements by which the commonwealth government pays 75 per cent of the cost of restoring essential public infrastructure. Not just state infrastructure but much of what gets damaged in these things are the infrastructure of local councils and what we've got is a great example of it here in Queensland. Many of the councils worst affected are some of the smallest councils in Australia. So the roads that they have are really important to everyone, but they've actually got a very small group of ratepayers and a very small ability to cope with fixing it. And the state government pays 25 per cent. So we've got the money to pay our 25 per cent but it will really stretch our budget. The Commonwealth are saying in order for us to fix something of this scale, not only in Queensland - they've this massive event in Queensland, as well as what happened in Victoria and to some extent Western Australia. They're saying in these circumstances we need Australians to pitch in and help in a way that Australians have done before.

When asked why Queensland did not insure itself she said:

That's a very good question. I'm very pleased to have a chance to answer it. For exactly the same reason that under John Howard the Commonwealth Government decided not to be insured either and that is because it is not cost effective in a state as big as Queensland. We went out to the market about seven years ago. The cost of - well, first of all they won't insure us for roads. They don't ensure New South Wales for roads. They don't ensure other states. You can't get insured for roads. More than 80 per cent of the cost of this disaster is roads. So when we went out to the market and said we are a big state that has a lot of disasters and we want insurance, the cost of getting the insurance as actually more than it was for effectively self-insure. So we are doing the exactly the same as the Commonwealth decided to do under the Howard Government, which is also not insured. What it does is self insure, because it's more cost effective for taxpayers.

She then pointed out they put money aside in every budget - $700M in the last one as part of self insurance. As Acting Premier Paul Lucas alluded insurance isn't a "free" risk protection scheme. The insurer needs to make a profit.

And size of risk does matter. There aren't many insurers that can absorb the risk - and the consequence can be the worst of all worlds. You pay your premium and the insurer goes under just when you need to claim.

And the poor mugs who will pay are taxpayers unnecessarily lining the pockets of insurers.

Bad decision.

Novae Meridianae Demetae Dexter delenda est

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