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."

Out of six cross-benchers, only Queensland independent Bob Katter, who refused to support Gillard in forming a government after last year's election deadlock, said he would back the levy.

"They've got me boxed in, haven't they? I mean, we've had colossal losses," the colourful Katter said. "Our situation is depressing, dismal and disastrous at the present moment."

Australia has previously used one-off levies to fund a gun buyback after a 1996 massacre in Tasmania, to protect staff entitlements after the 2001 collapse of airline Ansett, and to support the dairy and sugar industries.

Flood victims and those hit by last week's monster cyclone which tore across the northeast coast are exempt from the flood tax, which will only apply in the 2011-12 year and will be voted on in a few weeks.

"The package that I have outlined as prime minister is the right package for this nation," said Gillard, urging the opposition to put aside "petty politicking".

"We are facing a national disaster, it's a national challenge and it's a national responsibility."

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