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National Disaster Fund A Bad Idea

January 29, 2011

Okay, we set up a national (or natural) disaster fund and pour taxpayers’ money into it. The next time there’s a hailstorm or hurricane or flood there’ll be a demand from stricken families and devastated businesses and vocal mayors that generous lashings of cash be sent their way. This will be a great relief to insurance companies who will resist claims more forcefully knowing that their clients will join the queue for hand-outs from the fund.

Why should councils and businesses make their own provision for disaster if the public expectation is that Granny State will always be there to gather up claimants to her ample bosoms and let flow her balming milk?

A fund may have strict guidelines to start (only infrastructure, no private coverage etc) but you watch them get stretched with each new disaster. After all, any government is going to look cold-hearted if it says no. And global warming means those disasters will come thick and fast and be more devastating. But – here’s another problem – what makes a disaster? The damage done by a routine hail storm will be classified as a national event if it hits a marginal seat or a “battleground” state.

The demand for such a fund is effectively an attempt to have the taxpayer assume responsibility for the expenses that are part of the cost of doing business, especially in flood or hurricane-prone regions, or the real liability of insurance companies.

It is effectively another bid to extend taxpayer responsibility and the size of the public sector and the Federal government ought to listen to its Treasury advisers before even nodding in this particular direction.

8 Comments
  1. Andrew Rock permalink
    January 29, 2011 9:42 am

    Agreed. The government already has a contingency amount in its budget that can be dipped into for small events. How much money do we want sitting around doing nothing to build the future? It would never be allowed to get big anyway. Whatever money goes into such a fund will not ever make it past the next disaster. Any attempt to hold some back will be resented enormously.

  2. January 29, 2011 12:39 pm

    Bob

    I would be interested to know if there is any precedence for National Disaster Funds elsewhere in the world where disasters occur with hurricanes in the US, earthquakes in Japan or snowstorms in Europe ??

  3. January 29, 2011 1:07 pm

    Why not make it clear in the legislation and to the public the exact scope and limit of the fund and make sure the fund is administered by people that are separate from government? Similar to how the future fund is run or how the Reserve Bank sets interest rates independent of the government?

    If governments of both stripes could resist retaking control of interest rates each time an independent rate hike hurts them politically then I dont see why a disaster fund could not also be handled competently and independently.

  4. January 30, 2011 6:16 am

    Agree 100% Bob. Also concerned about cutting the climate change work. Although this particular event has a lot to do with La Nina, there is compelling evidence that climate change induced by man causes more wild weather events. What irony that we would cut the prevention work to provide bandaid solutions.

  5. senexx permalink
    January 30, 2011 11:12 am

    As a national (federal) government is always the insurer of last resort, it does make sense on one level. Key words there being ‘last resort’ as opposed to ‘first resort’.

    That aside I’d like to see Oakeshott’s idea of Infrastructure Bonds more widely discussed.

  6. Aleksandra permalink
    January 31, 2011 8:07 am

    Absolutely agree. Are we a free market State or a Government-baby-sat state? I doubt that it is sustainable in the long run for taxpayers and Government to continue to bail us out of trouble. How much more can middle income earners afford to pay? Increase interest rates and increase cost of living, its not sustainable.

    Insurance providers need to meet their obiligations. Councils and State Government need to be responsbile for their planning decisions. Taxpayers should not be responsible for natural dissasters, poor planning decisions or insurance providers not paying. Especially now that the Gillard Government is showing its lack of committment to climate change management. Disgraceful.

    As a middle income earner I would, however, pay a climate change management levy.

  7. Bob Carr permalink
    February 1, 2011 1:04 pm

    It would still see a gradual shift of responsibility from individuals and businesses, who now have to consider their own insurance arrangements, to the taxpayer – that is, through this fund. And the pressure to have it shovel out taxpayers’ money, even if the flood or storm or fire is only of regional or local impact, would be hard for the trustees of the fund or the politicians who appoint them to resist. In short, it can only grow in response to public pressure and communities will only come to expect more, not less, from it. This is how the public sector keeps growing, in response to this tyranny of small decisions.

  8. Watson permalink
    February 6, 2011 8:58 am

    Your discussion does not seem to dwell on the problem created by the constant re-assessment of budget spending in the light of the latest disaster. Like Ken Boundy I was saddened to see the Gillard Government move to delay greenhouse gas reduction programs (which are also new job creating programs) . Couldn’t we start with the fuel tax subsidies to the mining industry of the past instead of choking off the beginnings of a new economy?

    I agree with your concerns about uncontrolled growth of the ‘nanny state’, and the expectation that you can build your house where ever you like and the government will pick up the tab. But what about publicly owned infra-structure – roads, hospitals, schools, power supplies etc? Perhaps we need to re-consider how we pay for damage to these systems, as well as how they can be designed to better resist the effects of natural disasters. After all, as we have seen over many years, the first problem is a safe and reliable refuge during the disaster, and the second, a system that can be re-established quickly after the immediate danger of floods winds or fires has receded.

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