Floods drain $5b from national economy

Floods continue in SA and in the Kimberley communities in Western Australia.

A National Emergency Management Agency analysis released on January 13 showed 68 per cent of Australians live in a local government area that was subject to a natural disaster declaration in 2022.

Treasury estimates a $5 billion, or 0.25 per cent of real GDP, hit to the economy, mainly arising from reduced activity in mining, agriculture, accommodation and food services, retail trade and construction.

This does not include damage to housing or transport infrastructure or the costs to the federal budget.

The Federal Government made $3.5 billion in disaster recovery payments and allowances in 2022, as well as providing assistance through the states, and will spend billions more in 2023.

Global reinsurance company Munich estimated the NSW and south-east Queensland floods in February and early March were the fourth most costly global disaster in 2022.

Rebuilding of roads, bridges and other infrastructure is expected to take years.

From a consumer perspective, the floods — coupled with disrupted supply chains — pushed up the price of fruit, vegetables and other agricultural products.

Fruit and vegetable prices increased 16.2 per cent during the year to the September quarter, compared to an average annual rate of 2.5 per cent during the 10 years preceding COVID-19.

Further impacts on inflation are anticipated in coming months.

Separate analysis found 68 per cent of Australians lived in a disaster-impacted area in 2022.

“That gives you a sense of the size and scale of the challenge that we’re up against,” Federal Treasurer Jim Chalmers said.

The affordability and accessibility of insurance is also expected to remain a key problem as it becomes less viable for commercial insurers to offer policies in high-risk parts of Australia.

Dr Chalmers said contributing to a reinsurance pool, which is essentially insurance for insurers in large-scale disasters, was one way the government could support affordable insurance for Australian homes and businesses in high risk areas.

“There’s a role there but we need to be careful about how we expose the government's balance sheet to some of these big risks,” he said.

“The most important thing that we can do as we work on these issues, such as insurance, is around mitigation.”

The Federal Government has set up a new disaster ready fund that will provide federal funding to states and territories to invest in flood levees, fire breaks and other mitigation infrastructure.

Dr Chalmers said natural disaster support would be a key focus of the May budget, as it was in his first budget in October.