Budgeting for Natural Disasters is a briefing paper from the Centre for Policy Development, written by CPD Economic Director Toby Phillips, Wellbeing Economy Research Director Warwick Smith and former RBA Deputy Governor Dr Guy Debelle.
Natural disasters like bushfires, floods and cyclones are a regular part of life in Australia. So too are the billions of dollars governments spend cleaning up after them. These events aren’t rare or unpredictable. They’re inevitable — and we should be planning, and budgeting, for them accordingly.
But currently, the federal budget only includes disaster recovery spending for events that have already happened. The prospect of future disasters, no matter how certain, are treated as unquantifiable “contingent liabilities” and excluded from budget estimates. That’s not just unrealistic, it’s fiscally misleading. Budgeting for Natural Disasters reveals 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 argues that estimated future disaster costs should be included in existing budget lines, a straightforward fix that would not only improve the accuracy and transparency of the budget, but provide greater incentive to invest in disaster adaptation and resilience — spending that not only protects lives and communities, but also reduces long-term costs.
Budgeting for Natural Disasters is a briefing paper from the Centre for Policy Development that argues future disaster recovery costs should be added to the federal budget to improve fiscal discipline and incentivise investment in climate adaptation and resilience.
Treasury’s budget papers say that natural disasters are too unpredictable to include in forward estimates. Because the precise cost of any given event is hard to forecast, the budget only reflects recovery spending once disasters have already occurred.
While the exact details of individual disasters are hard to pin down, the aggregate cost of disasters over time is predictable. In fact, it’s no more difficult to estimate than other key variables already used in budget forecasting such as unemployment or inflation.
The authors point out that actuaries, insurance companies and even the government’s own Intergenerational Report already model these future costs with a relatively high degree of confidence. These estimates are used for economically significant decision-making. The problem isn’t a lack of data or modelling ability — it’s a policy choice not to include this spending in the budget.
The most direct fix would be to incorporate future disaster costs into existing budget lines, such as the Disaster Recovery Funding Arrangements, which support state and territory recovery efforts. Alternatively, Treasury could create a new budget line that records estimated spending on future disasters. Either option would bring greater honesty to the budget and improve the government’s ability to plan and budget for the impacts of natural disasters.
Including likely disaster costs in the budget would improve accuracy and transparency, helping decision-makers better understand the true state of public finances. It would also give adaptation and mitigation policies a fairer hearing in Cabinet discussions. Right now, those policies show up as upfront costs, while the benefits — reduced disaster recovery spending — are invisible in the budget process. Currently there’s no incentive for governments to invest in disaster mitigation; if anything, there’s a disincentive. Recognising the true cost of inaction would strengthen the case for preventative investment in adaptation and resilience.
Ultimately, this isn’t about spending more. It’s about budgeting for what we already know is coming — and putting the numbers where they belong.
