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Natural Disaster Funding

Inquiry report

This report was sent to Government on 17 December 2014 and publicly released on 1 May 2015. It looks at the efficacy of current national natural disaster funding arrangements, taking into account the priority of effective natural disaster mitigation and the reduction in the impact of disasters on communities.

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  • Key points
  • Contents
  • Australia is exposed to natural disasters on a recurring basis. Effective planning and mitigation of risks is an essential task for governments, businesses and households.
  • Current government natural disaster funding arrangements are not efficient, equitable or sustainable. They are prone to cost shifting, ad hoc responses and short-term political opportunism. Groundhog Day anecdotes abound.
  • Governments overinvest in post-disaster reconstruction and underinvest in mitigation that would limit the impact of natural disasters in the first place. As such, natural disaster costs have become a growing, unfunded liability for governments.
  • The funding arrangements matter because they impact the incentives to manage risks, including by using potent but politically challenging levers like land use planning. The reform imperative is greatest for states most exposed to natural disaster risk, like Queensland.
  • The recommended reforms comprise a coherent policy package across recovery and mitigation funding, budget treatment of recovery costs, and accountability requirements for all governments. 'Cherry picking' component parts would see the much needed balance between mitigation and recovery, as well as greater state autonomy, remain elusive.
  • Australian Government post-disaster support to state and territory governments (states) should be reduced, and support for mitigation increased. Greater budget transparency and some provisioning is also needed.
    • States need to shoulder a greater share of natural disaster recovery costs to sharpen incentives to manage, mitigate and insure against these risks. The Australian Government should provide a base level of support to states commensurate with relative fiscal capacity and the original 'safety-net' objective of disaster recovery funding, with the option for states to purchase 'top-up' fiscal support.
    • Australian Government mitigation funding to states should increase to $200 million a year and be matched by the states.
    • These reforms would give state and local governments autonomy in how they pursue disaster recovery and mitigation. The reforms should be supported by performance and process based accountability mechanisms that embed good risk management.
  • Governments have a role in providing emergency relief payments to individuals seriously affected by natural disasters, to defray immediate economic and social hardship. Such relief should be provided in a consistent, equitable and efficient way.
  • Governments can do better in terms of policies that enable people to understand natural disaster risks and also to give them the incentive to manage the risks effectively.
    • Information on hazards and risk exposure has improved significantly in recent years, but there are opportunities to improve information consistency, sharing and communication.
    • Regulations affecting the built environment have a significant influence on the exposure and vulnerability of communities to natural hazards. While building regulations have generally been effective, there is a need to transparently incorporate natural disaster risk management into land use planning.
  • Insurance is an important risk management option. Insurance markets in Australia for natural disaster risk are generally working well, and pricing is increasingly risk reflective. Insurers can and should do more to inform households on their insurance policies, the natural hazards they face and the indicative costs of rebuilding after a natural disaster.

Background information

Leonora Nicol (Media and Publications) 02 6240 3239 / 0417 665 443

  • Preliminaries
    • Cover, Copyright, Letter of transmittal, Terms of reference, Contents, Abbreviations and Glossary

Volume 1

  • Overview - including key points
  • Summary of reforms
  • Recommendations and findings
  • Chapter 1 About the inquiry
    • 1.1 What has the Commission been asked to do?
    • 1.2 The conceptual framework
    • 1.3 A guide to the report
  • Chapter 2 The performance of Australia's natural disaster funding arrangements
    • 2.1 Current natural disaster funding arrangements
    • 2.2 Managing risks to government-owned assets
    • 2.3 Managing shared risks
  • Chapter 3 Natural disaster funding reforms
    • 3.1 A framework for effective natural disaster management
    • 3.2 Relief and recovery
    • 3.3 Mitigation
    • 3.4 Accountability
    • 3.5 Impacts of the funding reforms
  • Chapter 4 Policy reforms to improve natural disaster risk management
    • 4.1 Information
    • 4.2 The built environment
    • 4.3 Insurance markets
    • 4.4 Infrastructure
  • Chapter 5 Implementing natural disaster reforms
    • 5.1 The reforms at a glance
    • 5.2 Recovery funding
    • 5.3 Mitigation funding
    • 5.4 Accountability arrangements
    • 5.5 Other policy reforms
    • 5.6 Interactions with federal financial relations
    • 5.7 Summary of transitional arrangements
  • Appendix A Conduct of the inquiry
  • References

Volume 2

  • Supplementary Paper 1 The impacts of natural disasters
    • 1.1 Introduction and key points
    • 1.2 Natural disaster types and trends in Australia
    • 1.3 The economic costs of natural disasters
    • 1.4 The fiscal costs of natural disasters
    • Annex 1 — Recent improvements in natural hazard information
    • Annex 2 — Economic costs of natural disasters
  • Supplementary Paper 2 Natural disaster funding arrangements
    • 2.1 Introduction and key points
    • 2.2 A brief history of Australia's emergency management and natural disaster funding arrangements
    • 2.3 Private and government sector roles and responsibilities
    • 2.4 Government funding frameworks
    • 2.5 Government funding
    • 2.6 Private funding
  • Supplementary Paper 3 Effective natural disaster risk management
    • 3.1 Introduction and key points
    • 3.2 What is natural disaster risk management?
    • 3.3 Effective natural disaster risk management by households and businesses
    • 3.4 What is the role for government?
    • 3.5 Managing natural disaster risks to government-owned assets and service delivery
    • 3.6 Reducing impediments to effective natural disaster risk management
    • 3.7 Supporting management of shared risks
  • Supplementary Paper 4 Natural disaster mitigation
    • 4.1 Introduction and key points
    • 4.2 What is mitigation?
    • 4.3 Assessing mitigation options
    • 4.4 Institutional and governance arrangements for mitigation decision making
    • 4.5 Funding and financing mechanisms
  • Supplementary Paper 5 Insurance and natural disasters
    • 5.1 Introduction and key points
    • 5.2 The role of insurance in risk management
    • 5.3 Are governments' insurance arrangements consistent with effective risk management?
    • 5.4 Are private insurance arrangements consistent with effective risk management?
    • 5.5 Insurance affordability and coverage
  • Supplementary Paper 6 Managing natural disaster risk to the built environment
    • 6.1 Introduction and key points
    • 6.2 Policy instruments for managing the built environment
    • 6.3 Land use planning
    • 6.4 Building regulations
    • 6.5 Existing areas of settlement
    • 6.6 Other built assets
    • Annex — Land use planning arrangements
  • Supplementary Paper 7 A quantitative assessment of funding arrangements for natural disasters
    • 7.1 Introduction and key points
    • 7.2 Estimating the economic and fiscal costs of natural disasters
    • 7.3 Analysis of different funding arrangements
    • 7.4 Natural disaster costs under the counterfactual
    • 7.5 Quantitatively assessing the Commission's funding model
    • 7.6 Additional sensitivity analysis
    • Annex — Econometric modelling
  • Supplementary Paper 8 Lessons from other countries
    • 8.1 Introduction and key points
    • 8.2 Mitigation funding arrangements
    • 8.3 Relief and recovery funding arrangements
    • 8.4 Government-backed insurance schemes
    • 8.5 Fiscal management of natural disasters
    • 8.6 Natural disaster information provision
    • 8.7 Regulation of the built environment
  • References

Printed copies

Printed copies of this report can be purchased from Canprint Communications.

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