Mother Nature is not finished

As Julia Gillard attempts to convince everyone that the flood levy is the “best thing for the country” I have to reprint the following lines.

“It is not true to say to Australians that there is a big pile of money there that somehow I could just go and use,” Ms Gillard told the Seven Network today.

“It doesn’t just sit there, this is not a magic pot of money that can be rolled out in the face of an unprecedented natural disaster.

Oh Julia. How little you seem to know about your own economic system.

I note this morning that it is being reported that this will only cost the average income earner $75 dollars. I will remind my readers however that sectoral balance tells us that a cut in government spending is the same as a tax. The overall cost from the government to the private sector could be much more than the claimed values if more money is removed from the budget than added to the recovery fund.  However with a positive balance of trade it is possible for the government to run a surplus budget without having a negative wealth effect on the private sector, it is all dependent on the numbers.

The costs for the private sector are still mounting, and many of the newly indebted in Brisbane are going to struggle with the costs of repairs.

The pain is not over for Brisbane unit owners, who may be slugged with huge body corporate levies to repair flood damage.

CTS Management director Coralie Mott said some bodies corporate were facing costs close to $1 million as electrical wiring, switch boards, lift wells and garage roller doors were destroyed when basement carparks flooded.

With no power and no working fire alarm or sprinkler systems in place as a result, residents across the city were forced to leave their apartments for more than a week after the flood receded.

At least five residential towers in the central business district, including Admiralty Towers One, were without power and essential services for a week.

As the last CBD residents returned home on Australia Day, bodies corporate began contemplating how funds would be raised to cover the repair costs running into the hundreds of thousands of dollars.

Ruth Sapsford, body corporate manager of an eight-unit block in Toowong, said at least two owners facing financial difficulty were concerned they would not be able to meet a special levy if needed to pay the replacement of an electrical switchboard.

On top of those costs is the obvious deflationary effect that the flood will have on their property values. So although these people will not pay the flood levy, their initial losses and property devaluation are all a drain on private sector wealth.

But worse could be yet to come. It seems that Mother Nature is not finished with Queensland yet. She is about to send in a new salvo of nature induced pain in the form of twin cyclones.

Queenslanders are being urged to prepare for the worst as two powerful cyclones threaten to batter the flood-ravaged state.

Tropical Cyclone Anthony is hovering off the Australian eastern seaboard, with authorities warning it will increase in intensity and hit landfall as early as tomorrow afternoon.

It’s feared a second cyclone, named Yasi, will develop from an intense tropical low currently near Fiji.

….

Last night, Queensland Premier Anna Bligh said Cyclone Yasi could be the more damaging of the two and may heap more misery on the state.

“The second event is likely to be much more serious, with significantly more rainfall and high winds attached to it,” she said.

“The events could be as serious, if not more serious, than what we have seen in the last few weeks.”

Whether this is another attack from La Nina the black swan or simply Queensland’s standard cyclone season in action, the effect is likely to be even more economic pain for Queensland.

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Comments

  1. Umm Delusional, back to the equation, wouldn’t the increase in the levy be offset by the increase in govt spending on the rebuild?

  2. What is with the MSM and QLD gov trying to scare the shit out of people. Cyclone Yasi doesn’t come onto screen until Tuesday and forecasting cyclones and Lows is tricky, with an extremely wide margin for error.

  3. In the 1841 era of floods there was a cluster of high rainfall events with one being 3 metres higher than the 1974 flood event.

    In the 1893 era of floods there was a cluster of high rainfall events with one being 3 metres higher than the 1974 flood event.

    Between the two clusters approx. 60 years apart, there was 5 flood events approx. equal to 1974 and two that were 3 metres above the 1974 event.

    And I’m not even bothering to include the 1820’s flood events.

    Source: BOM

    Some people follow large weather cycles, e.g. 300 year cycles using sun activity.

    One site, Weatheraction.com follows a 132 year cycle.

    1824 + 132 = 1956

    1841 + 132 = 1973

    1893 + 132 = 2025

    Feeling lucky punk?

    • Great “economic opportunity” here – buy cheap(er) in coastal QLD in say the next 2-4 years, but remember to flog it off before 2025!! Let’s hope Michael of Sydney doesn’t cotton-on to this – he’ll be buying ALL the flood-prone coastal properties then selling them on en masse to the greater fools around 2023-2024!!

  4. Npi_Tweet

    >Umm Delusional, back to the equation, wouldn’t the increase in the levy be offset by the increase in govt spending on the rebuild?

    Well you need to look at overall cost to the private sector for the event, which is

    (Loss from flood) + (Loss from levy Tax) + (Loss from govt spending cuts) – (Rebuild funding)

    The loss from flood is difficult to calculate at this stage because it isn’t just the initial infrastructure. It is also the cost of loss business, the flow-on effects to employees etc. There is also the expected short-term inflation that also will come at a cost to the private sector.

  5. Time for major tax reform, including establishing a new future fund fir disasters. GST to 15%, reduce payg and company tax, reform NG and asset test fir pensions and introduce the super profits tax, all as one.

  6. ED,

    Your statement that a “cut in government spending is the same as a tax”, doesn’t seem right.

    Why pick tax, when all other variables could equally apply? Eg, A cut in government spending is the same as an import.

    So, what do you really mean by “the same”?

    Given that if all other variables were constant, such that the only 2 changing variables were GS and Tax, then, a cut in government spending would necessarily require an equivalent tax cut.

    Is it not therefore more appropriate to say that “a cut in government spending the same as a tax cut”?

    That is, “Tax” vs “tax cut”. Which is essentially the opposite of what you said..

    Cheers,

    Dave.

  7. >Your statement that a “cut in government spending is the same as a tax”, doesn’t seem right

    David you need to look at this from sectoral balance.

    If all other things are equal, then a cut of government spending by $1 billion dollars or a new tax of $1 billion dollars has the same effect. It provides the private sector with $1 billion dollars less in financial assets than it would otherwise receive.