Australian Economy Suffers $5 Billion Loss from Extreme Floods in 2022

An aerial drone view of houses inundated by floodwater in Woodburn, Australia, on March 07, 2022. Dan Peled/Getty Images

Floods and other natural disasters brought significant financial damage to Australia and affected the lives of nearly 70 percent of the population in 2022.

The Treasury has estimated that last year, the Australian economy lost $5 billion (US$3.49 billion), or 0.25 percent of real GDP, due to reduced activities in the mining, agriculture, accommodation and food services, retail trade and construction sectors.

However, this amount does not capture the full human costs, the damage to housing or transport infrastructure or the costs to the federal budget.

“That gives you a sense of the size and scale of the challenge that we’re up against,” Treasurer Jim Chalmers told ABC Radio during his trip to northern New South Wales (NSW) to inspect rebuilding efforts in disaster-stricken areas.

“These natural disasters are becoming more prominent, more damaging that have consequences for the broader economy.”

One in Seven Australians Were Subject to Natural Disasters in 2022

The National Emergency Management Agency has revealed that 68 percent of Australians reside in a local government area that was issued a natural disaster declaration in 2022.

In 2022, Australia suffered 46 natural disasters, causing the federal government to make $3.5 billion in disaster recovery payments and allowances.

According to global reinsurance company Munich Re, the world’s second-costliest natural disaster for insurers in 2022 was the floods in Queensland and NSW, which resulted in overall losses of around US$6.6 billion. Of this amount, just below US$4 billion was insured.

Meanwhile, the country’s network of infrastructures also suffered tremendously during 2022, with rebuilding work expected to take years to complete.

Currently, floods still continue to ravage South Australia and the Kimberley communities in Western Australia.

Impacts of Natural Disasters on Food Prices and Insurance Premiums

Last year was not a pleasant year for Australian consumers as they witnessed the prices of fruit, vegetables and other agricultural products going through the roof following severe flooding in major agriculture production areas.

At one point, lettuce prices jumped to $11.99 each at Queensland supermarkets from the previous prices of $2.8, while other vegetables also saw significant rises.

The Treasury estimated that fruit and vegetable prices soared by 16.2 percent in the 12 months to the September quarter of 2022, while the average annual growth rate over the ten years before the COVID-19 period was only 2.5 percent.

It is also expected that further impacts of food prices on inflation will materialise in the upcoming months.

A family are evacuated by State Emergency Service workers due to rising floodwaters in Sydney, Australia, on July 4, 2022. Jenny Evans/Getty Images

But food prices are not the only thing that is going up, as thousands of Australian households in flood-prone areas have been subject to soaring insurance premiums and policy cancellations due to the recent floodings.

Insurance affordability and accessibility are expected to become a major issue for the community as commercial insurers find it increasingly less viable to offer policies in certain parts of Australia.

The treasurer said there was no easy solution to the problem and that the government was making a reinsurance pool to support affordable insurance for Australians in high-risk areas.

“There’s a role there, but we need to be careful about how we expose the government’s balance sheet to some of these big risks,” he said.

“The most important thing that we can do as we work on these issues, such as insurance, is around mitigation.”

Chalmers also said that the upcoming May budget would focus on natural disaster support.

“These natural disasters are first and foremost a human tragedy, and that will always be our main focus, but there are substantial costs to the economy and budget, too,” he said.

The Treasury’s estimates come after the government announced that the first round of support from the Disaster Ready Fund was now open for application.

The Albanese government established the $1 billion fund to provide funding to states and territories as well as councils for projects aiming to reduce risks of floods, cyclones, bushfires, storm surges and other natural disasters over a five-year period.