Julia Gillard battling flood levy backlash

JULIA Gillard is fighting to contain a growing public and political backlash against her $5.6 billion flood reconstruction package.

JULIA Gillard is fighting to contain a growing public and political backlash against her $5.6 billion flood reconstruction package, as community goodwill from the Queensland disaster threatened to evaporate and one Labor state broke ranks over the rescue plan.

On a day when the Prime Minister hoped to tap into Australia's spirit of generosity to win support for her one-off tax increase on middle- and high-income earners and spending cuts, she found herself struggling to get on the front foot.

Ms Gillard was forced to slap down Kristina Keneally after the NSW Premier demanded changes to the proposed $1.8bn levy, claiming it was unfair to Sydneysiders because they faced higher living costs than other Australians.

Ms Gillard was also dragged into a testy exchange during a radio interview in her home town when Melbourne talkback host Neil Mitchell repeatedly pushed her over Labor's ability to deliver value for money, in the wake of the waste exposed in the $16.2bn Building the Education Revolution program.

"The federal government will make sure that the guidelines are there and that they're adhered to so that we get value for money," Ms Gillard said. "I've put together a package I believe is right for the nation now. It's full of tough decisions. When I was making them, I knew they would be controversial. I believe it's right. I'm going to get on with doing it."

Tony Abbott plans today to personalise his attack on Ms Gillard's levy, accusing her of ripping off flood victims, donors and volunteers because of the tax increase. The Opposition Leader will tell a Young Liberals conference on the Gold Coast that Ms Gillard is out of her depth, and her decision to invoke a disaster to justify a one-off tax increase "compounds the wooden demeanour" she exhibited during the floods crisis and her "tin ear afterwards". He will also say there is a "big risk" that Ms Gillard will use responding to the floods as an excuse for fudging or putting off the "decision and delivery" she had promised on the mining tax, a carbon price, border security and hospital reform.

The government this week announced a two-tiered levy to raise $1.8bn next financial year to ensure the government could meet its election promise to bring the budget back into surplus by 2012-13.

Wayne Swan yesterday warned the impact of the Queensland floods would wipe 0.5 per cent off economic growth and, because Queensland supplied one-third of the nation's fruit and vegetables, prices would rise, forcing the March-quarter Consumer Price Index 0.25 per cent higher.

Queensland Premier Anna Bligh bit the bullet yesterday and postponed for two years the signature project of her premiership, the planned $7.75bn Cross-River Rail line, to help the state economy absorb the flood impact.

Queensland yesterday unveiled its own budget update, revealing that the floods had sliced 1.75 percentage points off state growth and plunged the state budget further into the red, with the deficit forecast to hit $3.96bn for the coming financial year.

According to early polls, most Australians are against the levy, with The Australian's online poll recording more than 81 per cent of the 12,700 respondents opposed to it. Fairfax's online poll of 50,000 people had 74 per cent giving it the thumbs-down.

Ms Keneally, who faces an election in March, went head-to-head with her federal leader over the levy yesterday, arguing the federal government should reassess the way it is calibrated.

"The commonwealth, before they lock this levy in stone, may do well to consider some fine tuning," Ms Keneally said.

"What we know is that mortgages are higher in NSW on average and other costs of living are higher than other capital cities like Adelaide and Perth.

"Families really are doing it tough . . . many in NSW have already given so much in charitable giving and will have to pay more through rising food and other costs as a result of the floods."

Ms Gillard ruled out any special treatment.

"We apply it equally for people who earn similar incomes," the Prime Minister said. "So whether you're in Queensland, Victoria, NSW or anywhere else, if you're at the same income level or in the same family circumstances, then you're treated the same."

Victorian Premier Ted Baillieu said he was so worried about the soaring costs of construction, partly due to flood reconstruction as well as economic stimulus packages such as the BER that he wanted the issue on the agenda at next month's Council of Australian Governments meeting.

Ms Gillard said yesterday she wanted the $5.6bn flood rescue plan, to be introduced to parliament next month, to go through unchanged. "I will brief the independents . . . but I am determined to get this package through," she said.

The Prime Minister needs the support of independents and the Greens in both houses of parliament to push the levy through but she is yet to secure the votes of Greens MP Adam Bandt, Queensland MP Bob Katter, NSW MP Tony Windsor, WA National Tony Crook and South Australian senator Nick Xenophon, who are in favour of a broader rethink of national disaster funding and insurance schemes.

Winning support for the levy will be the biggest test of Ms Gillard's ability to steer a new course for the government, distancing itself from the administrative bungles and cost overruns that have become associated with the Rudd-era.

Business and industry applauded Ms Gillard this week when she took the axe to several Rudd-era industry support and subsidy programs aimed at reducing carbon emissions.

Speaking in Brisbane, Mr Swan said the impact of the Queensland floods meant it would take years rather than months for the state to recovery, with the rebuilding likely to be hampered by labour shortages and bottlenecks.

"The speed with which we can rebuild Queensland will be limited by the tightness of labour, as well as the extent to which we can take advantage of the mining boom," the Treasurer said. "This is one of our core challenges: there are only so many skilled tradespeople and workers to go around."

He foreshadowed that the May budget would deliver fresh funds for education, which he described as the principle driver of prosperity.

Ms Bligh said rebuilding Queensland's infrastructure would be the government's No 1 priority.

She said the proceeds of the expected $1.5bn sale of the lease of Abbot Point Coal Terminal in north Queensland would be ploughed into funding flood reconstruction.

Delay of the Cross-River Rail project, to have begun by 2013, giving Brisbane its first underground rail link, was necessary to salvage other infrastructure projects and preserve jobs in regional Queensland.

"We are simply not in a position to put it into this year's budget," Ms Bligh said. "That will be a decision that is reviewed in coming years, but we need to say right now that cannot be a priority.

"As we rebuild Queensland and reconstruct what we've lost, we don't want to see the economy slow down in other parts of the state which haven't been flood-affected."

The floods came on top of existing economic problems for Queensland, which has seen a downturn in royalties of $300 million this financial year, a loss of $1bn from the GST allocation and $1bn lost from property taxes.

State Treasurer Andrew Fraser said Queensland was in a for "wild economic ride" as the government managed the cost of reconstruction and containment of its inflationary impact, which could overheat the economy.

He said while unemployment would be a problem early in the new financial year from July, skills shortages would quickly emerge and become more acute.

Additional reporting: David Uren, Siobhain Ryan, Sid Maher