Australia PM introduces contentious floods tax

The flood levy, to apply to middle and higher income earners, is expected to raise some Aus$1.8 billion of the Aus$5.6 billion needed for reconstruction after record deluges engulfed vast parts of mining and farming state Queensland.

Roads, railways and bridges were destroyed by the torrent, which killed dozens of people and brought the coal mining industry to a standstill. It is expected to cut 0.5 percentage points off economic growth in the current fiscal year.

But Labor leader Gillard's one-seat majority may be tested by the legislation, as the conservative opposition favours budget cuts including slashing foreign aid to pay for the damage. Key independents have also raised objections.

Gillard told parliament rebuilding would be one of the largest peacetime infrastructure projects ever undertaken by an Australian government and the levy was "an expression of goodwill" to the victims.

"I understand that Australians are under cost of living pressure, I understand that," the prime minister said.

"But understanding those cost of living pressures we also believe it is right, at a time that the nation faces the kind of challenges we see from the summer of disaster that we've just lived through, to ask Australians to make a contribution too."