Australian budget forecasts heavy hit to economy due to floods and disasters
The increasing frequency of weather disasters will take its toll on the economy in the near term and force the government to fork out hundreds of millions of dollars to build resilience for more to come.
As Australia endures its third La Niña event in as many years, the budget estimates growth will lose about quarter of a percentage point during the current quarter, or about $5bn in economic activity, because of the flooding across the country’s south-east.
While the rebuilding in subsequent quarters – extreme weather permitting – will add back to economic activity, the repair bill won’t be cheap and excludes other impacts such as the mental health of communities hit.
The floods will also significantly add to cost-of-living pressures by increasing the price of fruit and vegetables and reducing activity in agriculture, mining and construction, the budget said.
Based on preliminary analysis, the October floods alone will add 0.1 percentage points to inflation in both the December and March quarters.
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Inflation, though, is still tipped to peak at 7.75% by the end of 2022 as lower than expected petrol prices relieve some of the pressure.
To address the impact of this year’s floods, there is $3bn in the contingency reserve to meet disaster recovery costs, including support payments to individuals, communities and businesses.
Some $38.3m will be funnelled into Disaster Relief Australia to fund 5,000 extra volunteers.
As of 20 October, disaster assistance has been made available in 94 local government areas across Victoria, Tasmania and New South Wales – representing about 30% of total agricultural production value in the 2020-21 period.
To prepare for future disasters, up
to $200m a year will be budgeted towards prevention and resilience initiatives through the disaster ready fund, funding projects such as flood levees, sea walls, cyclone shelters, evacuation centres and fire breaks.
Over the six-month period of the February, March and July floods, Services Australia provided nearly $3.2bn in assistance to 3.3 million claimants.
In disaster-prone communities, $22.6m will be provided over four years to help with insurance affordability and availability. The money will fund the establishment of new partnerships with the insurance industry on risk reduction and “inform mitigation projects that reduce premiums for Australian households”.
According to the Climate Council, large parts of Australia will be uninsurable by 2030 due to the risk of climate change.