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Let's talk about risk

So everyone’s talking about the flood tax. The “tax on mateship”. Whatever. Both parties have behaved more-than-a-little cynically in their approach to the situation, and everyone’s talking about the solution- a flood levy- rather than the underlying problem which is, of course, risk. More specifically, it’s a conversation about what risk should be socialized, and what risk shouldn’t.

It makes perfect sense that unforseeable risk should be socialised.  Which is why I like socialised medicine. It makes sense that people shouldn’t have to bear unreasonable financial hardship because of something they had no choice in. It’s also why I like pricing for negative externalities (cigarette, alcohol and junk food taxes are excellent examples): it shifts the cost from the public at large back toward the population that is choosing to take part in a risky activity.

Building a home on a flood plain is a risky activity.

After the Queensland floods, I think helping people who live in, say, Toowoomba, is really wise.  It wasn’t the most logical thing in the world for them to have flood insurance. They lived on a mountain. The risk was comparatively unforeseeable. They deserve help.

But I’m not ok with helping people who not only had foreseeable risk, but benefited from it. People who, say, bought expensive houses in riverside suburbs that continued to appreciate. These people made a decision knowing full well there was the possibility that there could be floods. They took a risk which didn’t pay off, and are now likely to be compensated by the broader public for their loss. (Yes, I know the “the dam will save us” argument, but that doesn’t at all entirely rule out the chance of floods).

So they made a decision. They weighed the risk versus the reward. Presumably, many of these people have had property prices increase substantially in the intervening years.  By socialising their loses, while the rewards remain private, the burden is being unfairly shifted.

Want to live in a flood prone area? If you can’t afford insurance or can’t get insurance, that should factor into your decision making process. I am of the firm belief that people who live in the bush and don’t have fire insurance because they can’t afford it actually can’t afford to live in the bush.  It is entirely foreseeable that when you live in a country with regular fires, in an area surrounded by trees, there’s every chance your house will burn down.

I live in the city. There’s a relatively larger chance my car will be stolen or my home will be broken into, or that one of my neighbours will have a kitchen fire and burn the whole apartment block down.  Accordingly, as part of living where I live, I have taken precautions against those eventualities.  And if I hadn’t, as I didn’t when I first moved to Sydney, it would be entirely unreasonable for me to expect society at large to pick up the bill for a conscious decision I made. I *could* have paid for contents insurance. Instead, I paid for gym membership. I took a risk. But the reward or consequences were mine and mine alone.

The scale of the disaster in Queensland doesn’t change the fact it has happened to individuals, individuals who made decisions that had consequences prior to the flood.

Want to levy for the rebuilding of roads and infrastructure? That makes sense. Want to levy for the provision of mental health services for rescue workers traumatised? Great idea.  Levy me to help pay the bills for people who lived on a hill, not in a flood plain, yet were flooded. But levying to assist people who, for whatever reason, chose to take consciously take a risk with the possibility of reward creates a dangerous precedent for risk-sharing in private investment in Australia.

The notion of a permanent disaster fund to respond to anything other than infrastructure concerns is a bad, bad idea. It’s socialising risk without socialising the reward.

PS I should add, I am aware of the problems some have with getting insurance, and I think the government should start a kind of “Public option” for insurance in catastrophe-prone areas, so those paying into the fund are the ones likely to use it.

4 thoughts on “Let's talk about risk

  1. The proposed Federal Government Flood Levy is only for public infrastructure. The Premiers Flood Appeal is for the victims.

    1. It won’t go toward Centrelink payments for victims or anything like that?

      As long as there’s a lot of public scrutiny on where the money is going, I think that’s totally fair then. Though the divide between what would usually be a Federal and what would be a State expense is also an important consideration…

  2. Interesting post Erin, you should offer it to New Matilda or something & have it read more widely – can just imagine the comments it would stir up (but convo worth having, certainly). I won’t get too much into what I think about the levy and such, I’d just say I don’t feel these sorts of events are unforeseeable (which I know you say but I mean in a broader sense rather than dependent on where you live) I’m of the opinion that “natural” disasters are tied to our (human induced) changing climate and as such an important part of better preparing for future disasters (and responding to the recent disasters) we need to look at just transitions away from coal dependence, working with the mining industry to incentivise a move from energy from fossil fuel to energy from technologies that harness clean sources.

  3. Developers have historically put great pressure on local and State governments to reclassify zoning for flood prone areas from 1 in 20 years flooding to 1 in 100 years flooding to allow development. When they buy cheap land (say a closed down drive-in) and get a win on re-zoning they generate huge profits when they can subdivide and sell parcels or develop large commercial premises. Of course flood risk is ever increasing the obviouse one being AGW induced climate change. The less known cause is increased urbanisation of cities and increasing paved/bitumen/built areas — especially at the edges. This increases the flash flooding run-off into local waterways and low-lying areas.

    The profits are privatised, the costs are socialised — does that sound at all familiar?

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