The levy we had to have?

It’s little wonder opinions are so divided on the Government’s flood levy.

While no one disagrees with the need to help rebuild Queensland, and no one minds taxpayer funds being used to do so, many bristle at the idea of a new tax for any reason.

The economists we spoke with this morning say the levy is so small that claims it will somehow hurt the economy are over the top – Australian households are well-placed to be able to afford the levy and there shouldn’t be any medium-term impact on consumer spending.

But of course, that does raise the question: Why then bother with a levy at all?

The answer has everything to do with politics.

A couple of days after the floods hit Brisbane, and some members of the Press Gallery started asking Julia Gillard about the impact of flood recovery costs on the Federal Budget, I wrote a blog post saying that concerns about the budget were off the mark.

Yes, the reconstruction costs would mean that we may not get back into surplus until 2012-13. But the Australian budget and economy were in such good shape that a small deficit wouldn’t mean anything, and certainly wouldn’t increase upwards pressure on interest rates as some fear.

But for some strange reason, the Gillard Government has ignored the opportunity to explain to the public why staying in (small) deficit for another year to extraordinary circumstances was okay and instead has continued to declare that the budget would be back in surplus by 2012-13 – come what may.

And now we have a levy – and a heap of cuts to climate change programs that were supposedly vitally important just 12 months ago – to help ensure that this great surplus goal is met.

It’s very short-sighted stuff.

Perhaps the most extraordinary thing Gillard said yesterday was that we must “pay as we go” when building the economy.

What a lot of claptrap. A government is not some teenager with a strict allowance and no credit card – it can and should borrow where circumstances dictate.

There is nothing wrong with borrowing relatively small amounts to help grow the economy and cope with extraordinary events – particularly when economic growth is going along nicely.

The Government quite rightly had no problem borrowing to help Australia GFC. Borrowing a much smaller amount when the economy is in far better shape would have also been completely justifiable.

Australians can cope with the levy and deep down, realise it’s for a very good reason. But we deserve better long-term economic thinking from our leaders.