You might have noticed Julia Gillard didn’t mention the Budget surplus very much yesterday. In fact, she mentioned it just once in her speech yesterday. Instead, her argument for a flood recovery was that it was critical to ensuring the recovery effort doesn’t drive inflation and skill shortages as rebuilding infrastructure competes with a booming economy.

There are plenty of economists, and good ones too, who aren’t quite as convinced as the Government that the flood recovery effort will be battling a surging economy. There are probably a few retailers who would think that, as well — retailers who just saw nearly $2b worth of discretionary spending vanish in 2011-12, apparently because it was going to compete for the rubber, steel and tradies needed to rebuild Queensland.

Moreover, reducing demand can be achieved just as effectively by cutting government spending rather than raising taxes. But the alternative for Gillard was impractical. Standing there and arguing for a levy on taxpayers purely for the sake of meeting Labor’s self-imposed deadline for a return to surplus would have been even less convincing.

Still, there were some policy positives. In delivering the package, Gillard did a drive-by shooting of some wretched programs. Not just Cash for Clunkers — has there ever been an initiative more widely panned than that lauded election announcement? — but the Green Car Innovation Fund, a blatant piece of protectionism for the coddled automotive manufacturing sector by Kevin Rudd, the man who didn’t want to run a country that didn’t make things.

Gillard also continue the slow backpedalling from Kevin Rudd’s obsession with carbon capture and storage by cutting funding for the Carbon Capture and Storage Institute. Expect an angry phone call from President Obama.

Getting rid of carbon abatement programs is a fine idea — particularly those that simply fund activities that would have taken place anyway, like cash-for-clunkers — as long as we can have confidence the carbon price Julia Gillard nuts out with the Greens, Tony Windsor, Rob Oakshott and Andrew Wilkie will be effective at curbing emissions.

Tony Windsor, by the way, is dead right in suggesting we need to think about a permanent natural disaster fund of some kind — exactly the kind of adaptation measure necessary given we’ve more or less already committed to significantly warming the planet and Australia faces the rougher end of the consequences of that. The alternative is that the taxpayers of the future pay for our mistakes — perhaps via one-off levies just like this one — when we should be providing them with a significant inter-generational transfer via a large-scale fund.

But the Prime Minister has at least shifted away from what has been bipartisan policy for the last decade — wasting hundreds of millions of dollars on carbon abatement programs that end up spending sometimes hundreds of dollars a tonne of abated CO2-e emissions — depriving her of any further excuses for not implementing a carbon price that will drive low and non-carbon investment.

Meantime, most of the debate around the levy has been reduced to a micro-level, about whether the levy is personally fair. “We’ve done our bit” was the line from the taxpayer-subsidised trolls at The Australian. Levy supporters on Twitter were more inclined to suggest opposition to the levy reflected some sort of personal moral failing or misanthropy on the part of opponents.

All of that not merely ignores the argument Ms Gillard made yesterday, and more to the point ignores two more important issues — just what role should fiscal policy be playing given the current multi-speed state of the economy and inflation, and where we should going on fiscal policy over the longer term — including in dealing with future extreme weather.