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By Julian Garratt, UNSW Co-op, 2023 IMF/WB Fellow
Executive Summary
Disasters have cost the Australian government billions in recovery and exposed homeowners to thousands of dollars in losses. Recent literature has proven the efficacy of anticipatory cash transfers based on Machine Learning forecasts to alleviate the strain on conventional government recovery interventions. Early action resulted in double the amount of social benefit compared to a late response and is especially beneficial to low-income households.
This paper recommends the creation of the Australian Government Anticipatory Action Fund (AGAAF) to finance anticipatory cash transfers. Compared to current funding mechanisms such as the Disaster Recovery Funding Arrangements, the AGAAF would prioritise disaster preparedness, aligning with recommendations from the 2020 Royal Commission into National Natural Disaster Arrangements. The AGAAF is expected to cost $260 million annually from 2024 and save approximately $3 billion per year in recovery costs (based on an 11:1 ROI estimate from the CSIRO). An additional $3 million is required to implement the software infrastructure to support a national anticipatory action program with oversight from the Department of Home Affairs via the National Emergency Management Agency.
Problem Identification
The cost of disasters triggered by natural hazards in Australia is projected to rise to at least $73 billion per year by 2060, assuming a low emissions scenario (Australian Business Roundtable for Disaster Resilience & Safer Communities, 2021). This is exacerbated by Australia’s high exposure to disasters relative to the Oceania region and the world (Bündnis Entwicklung Hilft & IFHV, 2023). Australia’s exposure to disasters is expected to cost homeowners $2,500 on average every year by 2050 (Mckell Institute, 2022), motivating the need for investment in disaster resilience.
Although the Australian government currently focuses on disaster recovery, international models have demonstrated the potential to finance households in anticipation of a disaster. Cost-benefit analysis estimates vary, however, Atkinson (2018) estimates that every pound spent on early action results in 2.58 pounds in social value (as measured by the nutrition of children and livestock health for example) gained compared to a late response. This is also in conjunction with the widely accepted stance from the Commonwealth Scientific and Industrial Research Organisation (CSIRO), which states that a $1 investment in disaster risk reduction saves between $2 and $11 in post-disaster recovery and reconstruction (CSIRO, 2020). The potential to fund at-risk households is especially evident in historically low socio-economic areas. Although a dynamic situation, in flood-prone regions such as Lismore, 60% of residents live in disadvantaged neighbourhoods (Rolfe et al., 2020). Anticipatory financing supports poorer households to purchase necessities such as non-perishables or petrol, which may become unaffordable after a price rise from a disaster-induced shock.
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