The federal budget doesn’t account for the real cost of natural disasters — and it’s costing Australians in more ways than one.
A new paper from the Centre for Policy Development reveals that the Commonwealth spends around $1.6 billion a year on disaster recovery, but only budgets for $215 million — creating a $6 billion gap over the forward estimates.
The paper, Budgeting for Climate Disasters, by CPD’s Toby Phillips and Warwick Smith, and former Reserve Bank Deputy Governor Dr Guy Debelle, calls for future disaster recovery costs to be included in the federal budget — not treated as an unquantified risk.
Including future disaster costs would improve transparency and fiscal discipline, ensuring the budget better reflects the real pressures on public finances and helps avoid unexpected fiscal shocks.
It would also create stronger incentives to invest in resilience and adaptation — by making the long-term savings from mitigation efforts visible in fiscal decision-making, rather than hiding the true cost of inaction.
The paper shows that this fix is straightforward, both actuaries and insurance companies already model future disaster risks with a sufficient degree of accuracy over multi-year periods — and even the government’s own Intergenerational Report projects future disaster costs.
Properly accounting for disaster recovery would reduce fiscal blind spots and improve accuracy and transparency in the federal budget. In fact, the Charter of Budget Honesty already demands that the government account for any factors with a material impact – and CPD’s paper argues that current budgeting practice fails this test.
Beyond just improving fiscal discipline, this proposal would also give adaptation and resilience policies a fairer chance at Cabinet level, ensuring their future savings are recognised alongside upfront costs
Dr Guy Debelle said that this wasn’t about new spending, it was about reflecting reality.
“Disasters are inevitable, not unpredictable. We know they’re coming, we just don’t know exactly when. That’s no different from other budget forecasts like unemployment or inflation.
“The actual budget outcome won’t change, it would just make the estimates more accurate.
“This spending is going to occur either way — by not budgeting for disaster recovery, we underestimate the long-term cost and under-value the benefits of preventing harm in the first place.”
Economic Director for the Centre for Policy Development Toby Phillips said the approach being recommended is standard practice in many industries.
“Insurers already use these kinds of estimates to set premiums and manage risk — and they also factor in how resilience investments reduce long-term costs. If a global financial industry can solve this problem, then so can our government.
“If your roof is nailed down properly or your house is elevated above flood levels, your insurance is cheaper. The same logic should apply to public spending.
“Disaster risk mitigation is actively discouraged by current budget practices. Governments have no incentive to reduce a risk that isn’t counted in the first place, that’s why the future expenditure needs to be in the budget.”
