Cyclone Alfred cost to budget dwarfed by Labor’s big-spending agenda

Jim Chalmers is citing Cyclone Alfred’s $1.2bn cost to the economy as a ‘big new pressure’ on his budget next Tuesday, but what about the federal Treasurer’s big-spending policies?

Sarah Elks and David Tanner

Treasurer Jim Chalmers fills sandbags ahead of Cyclone Alfred this month. Picture: Annette Dew

4 min read

20 hours ago

Jim Chalmers has labelled Cyclone Alfred’s immediate $1.2bn hit to Australia’s economy as a “big new pressure” on next week’s budget, but the disaster cost is dwarfed by the government’s own big-spending policies.

Delivering a major pre-budget address at the Queensland Media Club in Brisbane on Tuesday, Dr Chalmers said Treasury’s best initial estimates were that Alfred – which caused flooding in southeast Queensland and northern NSW this month – would cost the budget $1.2bn.

“How we fund the recovery and rebuild communities is the first key influence on the budget we’ll hand down a week from today,” the Treasurer said.

“The human impacts matter most to us here but the economic cost will be very significant as well … We are still getting a handle on the economic fallout but the cost will be substantial. The budget will book Treasury’s best, initial estimates: an immediate hit to GDP of up to $1.2bn. This could wipe a quarter of a percentage point off quarterly economic growth.”

Dr Chalmers also warned the destruction wrought by Cyclone Alfred could “lead to upward pressure on inflation” from “building costs to damaged crops raising prices for staples like fruit and vegetables”.

While Dr Chalmers launched his speech with the impact of Alfred – declaring “the first major influence on the budget has been meteorological”, and placing it ahead of global impacts including the impacts of the new Trump administration, China’s slowdown and wars in Ukraine and the Middle East – the cyclone’s $1.2bn cost will be a relatively small component of more than $700bn in government payments.

December’s mid-year update forecast government payments to hit $731bn this financial year and $775bn in 2025-26, as Dr Chalmers lifts payments from 24.4 per cent of GDP in 2022-23 to a record high outside the pandemic of 27.2 per cent of GDP.

Amid warnings from the Reserve Bank and economists about high government spending raising the risk of pushing inflation back up, many of the Albanese government’s policies in Dr Chalmers’s first three budgets have eclipsed the cost of Alfred’s economic damage. Although many big-ticket spending items have had economic benefits, others have been of questionable value.

Dr Chalmers’s 2024-25 budget last May included the $22.7bn Future Made in Australia policy, equivalent to almost 20 Cyclone Alfreds in taxpayer spending. But Anthony Albanese’s signature policy included $13.7bn (11.4 times the cost of Alfred) in spending on critical minerals and green hydrogen production tax credits.

The 2023-24 budget also included $2bn to underwrite large-scale clean hydrogen products.

Last month, Australia’s largest green hydrogen project collapsed after the Crisafulli Liberal National Party government in Queensland cancelled up to $1.6bn in state funding from the construction of the $12.5bn Central Queensland Hydrogen plant and pipeline in Gladstone. Woodside Energy has also shelved two green hydrogen projects in Australia and New Zealand, and Origin withdrew from a electrolysis-based Hunter Valley Hydrogen Hub venture.

Last budget, Dr Chalmers also allocated $16bn for road and rail infrastructure, more than 13 times more than the forecast cost of Alfred.

Dr Chalmers said that by last Thursday, 44,000 insurance claims had been lodged, and early modelling suggested the losses covered by the government’s Cyclone Reinsurance Pool were about $1.7bn.

He said the federal government had already co-sponsored with the states $30m for immediate recovery costs to repair roads and infrastructure, and there were hardship payments already flowing to cyclone victims.

“This budget will reflect some of those immediate costs and we’ll make sensible provisions for more to come,” Dr Chalmers said.

“I expect that these costs and these new provisions will be in the order of at least $1.2bn, a substantial amount of money and that means a big new pressure on the budget.”

In response to questions, the Treasurer said the government was still assessing the damage from the cyclone, but he could not wait weeks or months for a more exact reckoning of the damage bill, and instead relied on the current “best estimate”.

“I’ve got to put a number in the budget a week from today, so we make a sensible provision for the recovery and rebuilding (of) communities,” he said.

Dr Chalmers said Opposition Leader Peter Dutton and Coalition Treasury spokesman Angus Taylor had previously criticised Labor for “wasteful spending”, and denied the disaster funding – which amounts to about $13.5bn in next week’s budget – was wasteful.

“They think natural disaster funding, billions of dollars we’re providing Queensland, NSW and elsewhere, is wasteful spending. We take a different view,” Dr Chalmers said.

The estimated $1.2bn cost of Cyclone Alfred is a fraction of the $731.1bn in total government spending forecast for 2024-25 in December’s budget update and $775.3bn in 2025-26.

In November, Reserve Bank governor Michele Bullock warned Dr Chalmers to be “very conscious” of the inflationary impact of pre-election policies. At the time, she said she believed the Treasurer was “fully aware of the inflationary implications of his own policies”.

“He needs to be thinking about that because he – like me – understands that inflation is really what’s hurting people at the moment,” Ms Bullock said.

In February, the RBA cut the cash rate by 25 basis points to 4.10 per cent, the first reduction since November 2020.

Also in the 2024-25 budget, $16bn was allocated to road and rail infrastructure, $7.8bn earmarked for cost-of-living measures – including $3.5bn on energy bill relief and $1.9bn on rent assistance – and $6.2bn set aside to be spent on new housing investment including build-to-rent schemes.