Cyclone Alfred’s $1.2B Hit: Growth Slows, Inflation Rises
Cyclone Alfred will cost the March 25 budget at least A$1.2 billion, hit growth and put pressure on inflation, Treasurer Jim Chalmers says.
In a Tuesday speech previewing the budget, Chalmers will also say that on preliminary estimates, the cyclone’s immediate hit to GDP is expected to be up to $1.2 billion, which could wipe a quarter of a percentage point off quarterly growth.
“It could also lead to upward pressure on inflation. From building costs to damaged crops raising prices for staples like fruit and vegetables,” Chalmers says in the speech, an extract of which has been released ahead of delivery.
The treasurer says the temporary shutting of businesses due to the cyclone lost about 12 million work hours.
By last Thursday, 44,000 insurance claims had been lodged. Early modelling indicated losses covered by the Cyclone Reinsurance Pool were about $1.7 billion.
The estimated costs to the budget, which are over the forward estimates period, are preliminary.
The government has already co-sponsored with the states $30 million in support for immediate recovery costs, Chalmers says. Millions of dollars are being provided in hardship payments.
“The budget will reflect some of those immediate costs and we’ll make sensible provisions for more to come,” he says.
“I expect that these costs and these new provisions will be in the order of at least $1.2 billion […] and that means a big new pressure on the budget.”
This is in addition to the already budgeted for disaster relief.
“At MYEFO, we’d already booked $11.6 billion for disaster support nationally over the forward estimates.
“With all of this extra funding we expect that to rise to at least $13.5 billion when accounting for our provisioning, social security costs and other disaster related support.”
Chalmers will again argue in the speech his recent theme – that the economy has turned a corner. This is despite the global uncertainty that includes the Trump tariff policies, the full extent of which is yet to be spelled out.
Australia is bracing for the possibility our beef export trade could be caught in a new tariff round to be unveiled early next month.
Despite last week’s rebuff to its efforts to get an exemption from the aluminium and steel 25% tariffs, the government has vowed to fight on for a carve out from that, as well as trying to head off any further imposts on exports to the US.
In seeking the exemption, Australia was unsuccessful in trying to leverage its abundance of critical minerals, which are much sought after by the US.
Trade Minister Don Farrell told Sky on Sunday:
In Tuesday’s speech, Chalmers is expected to say the budget will contain fewer surprises than might be the case with other budgets.
This is because this budget – which would have been avoided if the cyclone had not ruled out an April 12 election – comes after the flurry of announcements already made this year and before further announcements in the campaign for the May election.
Those announcements already made include:
Deloitte Access Economics in its budget monitor predicts the budget will have a deficit of $26.1 billion for 2024-25.
Deloitte’s Stephen Smith said that although a $26.1 billion deficit was slightly smaller than forecast in the December budget update, the longer-term structural deterioration should be “a reality check for politicians wanting to announce election sweeteners in the weeks ahead”.
Deloitte projects a deficit of nearly $50 billion in 2025-26.
Over the weekend, Prime Minister Anthony Albanese took part in the “coalition of the willing” virtual meeting convened by British Prime Minister Keir Starmer in support of Ukraine.
The meeting also included Ukraine, France, Spain, Portugal, the Netherlands, Belgium, Denmark, Finland, Estonia, Lithuania, Latvia, Greece, Italy, Poland, Bulgaria, the Scandinavian countries, Canada and New Zealand. The United States did not participate. President Donald Trump is trying to force an agreement between Ukraine and Russia to end the conflict.
Albanese reiterated after the meeting: “Australia is open to considering any requests to contribute to a future peacekeeping effort in support of the just and lasting peace we all want to Ukraine”.
He added the obvious point: “Of course, peacekeeping missions by definition require a precondition of peace”.
Albanese said that any Australian contribution to a Ukraine peacekeeping force would be “small”.
Opposition Leader Peter Dutton has opposed sending Australians to a peacekeeping force.
Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.