Natural Disaster Funding Ad Hoc & Opportunistic - Draft Report

The Productivity Commission is recommending a major restructure of Federal Government funding for natural disasters in a draft report released today describing the current arrangements as inefficient, inequitable or not sustainable.

“Natural disasters are an unavoidable part of the Australian landscape,” Commissioner Jonathan Coppel said. “However, current funding arrangements are prone to cost-shifting, ad hoc responses and short-term political opportunism.”

The Commission recommends that financial support to the States and Territories for natural disaster relief and recovery be reduced while mitigation funding is increased to encourage Governments to manage natural disaster risks more sustainably and equitably.

The inquiry into the natural disaster funding arrangements has found that the current Natural Disaster Relief and Recovery Arrangements (NDRRA) create a financial disincentive for State and Local Governments to invest in mitigation and insurance.

“This is because they must bear the full costs of those activities, whereas they only pay a fraction of the cost of restoring essential assets damaged by a natural disaster,” the report said.

“The funding arrangements overwhelmingly tip the balance away from planning for and mitigating against natural disasters and towards waiting for expenditure to rebuild destroyed assets," Commissioner Jonathan Coppel said.

The inquiry also found evidence of duplication, inconsistency, inequity and inefficiency in the provision of emergency relief to individuals.

“We heard many firsthand accounts of assets repeatedly damaged by successive natural disasters, only to be rebuilt in the same location and to the same standard. Groundhog Day anecdotes abound,” Commissioner Karen Chester said.

The draft inquiry report identifies several options to reform the funding arrangements for natural disaster relief and recovery.

The Commission's preferred option is to reduce support under the NDRRA by increasing the small disaster criterion (from $240,000 to $2 million), increasing the annual eligibility thresholds and having a flat cost sharing rate of 50 per cent.

“This inquiry is not driven by the need to reduce fiscal costs for the Australian Government. It is about restoring autonomy and incentives to better manage natural disaster risks,” Commissioner Karen Chester said.

State and Territory Governments would have greater autonomy in how the funds are spent and also have the option of purchasing "top-up insurance" if they require it.

The Commission also recommends the Federal Government substantially increase its funding to the states for mitigation – from about $40 million currently to $200 million annually.

The draft report also makes findings and recommendations in relation to land use planning, insurance markets and the consistency, sharing and communication of natural hazard information, especially to households.

The Commission was asked by the Government to review current natural disaster funding arrangements, with the aim of achieving a more effective and sustainable balance of natural disaster recovery and mitigation.

The Productivity Commission is seeking views on its proposed reform options. Further submissions will be accepted until 21 October 2014, and there will be public hearings in late October.

Submissions can be lodged via the Commission’s website here.