23 July 2020

ACT budget bleeds red as COVID-19 takes toll on economy

| Ian Bushnell
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Chief Minister Andrew Barr

Chief Minister Andrew Barr said more support for the economy was on its way. Photo: Ian Bushnell.

The ACT budget deficit will blow out to hundreds of millions of dollars as a result of COVID-19’s impact on the economy.

Chief Minister and Treasurer Andrew Barr flagged the damage the virus had done to the ACT’s bottom line after Federal Treasurer Josh Frydenberg delivered the Federal Government’s budget update, revealing that the federal deficit had hit almost $86 billion, the worst number since World War II.

Mr Frydenberg said that was expected to explode to more than $184 billion next year, and predicted the unemployment rate would be above 9 per cent by the end of the year.

Net debt is expected to grow beyond $677 billion this financial year, or almost 36 per cent of gross domestic product.

Mr Frydenberg will hand down a delayed budget in October.

The next ACT budget will be delivered after the 17 October election but Mr Barr will provide a budget update in about four weeks.

Mr Barr said not only had the ACT Government spent millions on stimulus measures to support the ACT economy and employment, but its largest source of revenue had also been hit, with $140 million wiped from its share of GST, coming on top of Grants Commission adjustments announced earlier in the year.

He said that the total national GST pool had shrunk by $7 billion, and the ACT’s share was just below 2 per cent.

”Our single largest revenue source has taken quite a haircut and that is expected to remain a challenging situation for every state and territory for the next few years,” he said.

Mr Barr said net debt would continue to rise from the current 7 per cent of state gross product but the ACT’s AAA credit rating remained among the strongest in the nation.

He said there would be more stimulus spending to come, with another round to be announced next month.

”We recognise economic support will need to be ongoing,” Mr Barr said. ”I suspect we will have to provide further stimulus through 2020-21 and 2022 and 2023.”

With job creation high on the list for the Federal Government, Mr Barr hoped that recent Commonwealth infrastructure announcements for the ACT were a sign of more to come.

Mr Barr said the October budget was an opportunity for the Commonwealth to invest more in the ACT and pointed to the AIS Arena and precinct, public transport and public housing as areas where the two governments could work together.

But Mr Barr said the Commonwealth could also invest in its own assets in the ACT, particularly the cultural institutions beyond the Australian War Memorial, which all have worthy expansion projects needing funding.

Mr Barr also called on the Federal Government to rule out cuts to the Australian Public Service in the October budget.

”The absolutely worst thing that they could do for our economy and the broader Canberra region would be to throw people out of work through their budget in October,” he said.

”That will reduce the amount of money flowing through our economy, mean less money spent on small business, and have a downward compounding effect on our economy. We’ll be pressing home that point over coming months.”

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Capital Retro5:36 pm 25 Jul 20

By far, the biggest financial problem we Territorians are facing is the unfunded superannuation/pension scheme which will be about $8.5 billion in the next few years.

The defined benefit superannuation liability is projected to peak, in nominal terms, at
approximately $9.6 billion by 30 June 2032.

Is it really necessary to pay out huge amounts to already wealthy retiring public servants? How much money can one person spend for goodness sake?

The government should re-negotiate the terms of this rort and take the pressure off ACT taxpayers. They can start by stopping the annual hundred of millions of dollars in top-ups.

HiddenDragon7:04 pm 24 Jul 20

If Jon Stanhope’s yet to be contradicted analysis is correct, the ACT went into this crisis with the most challenging budgetary situation of any state or territory – but the thing all jurisdictions have in common is the mistake of assuming that boom-time revenues would go on without interruption, and expensive ongoing commitments have been based on that naive assumption.

We’ll have a couple of years of hoping and pretending that things will “bounce” or “spring” back, and when that fails to happen, governments around the country will have to adjust to a new normal of seriously constrained revenues – anyone who thinks we’ve already been living in an era of fiscal constraint will be in for a very rude shock.

When it’s all over, the ACT will likely still be better positioned than many other parts of the country, but expectations will need a serious re-set.

Yeah, blame a couple of months of covid for 2 decades of Labor wasting money.

Nobody is buying this excuse.

Capital Retro7:42 pm 23 Jul 20

With the rapidly reducing activity across all sectors in the ACT it is now time for a commensurate cutback in the size of the ACT Public Service. The private sector has to do it so why not the public one too?

The most predictable comment one would see on RiotACT all day today…..

So where would you like to start? Teachers? Health Professionals? After all they make up a substantial proportion of the ACT ‘public service’….

Your solution to a problem is to make matters worse by putting more people out of employment…

V good point – but I can easily identify (at least) 100 staff who should lose their jobs. We now have 25 MLAs and they each have 3-10 staff. Get rid of most of them, and save $11m a year – roll that right into hardship programs.

Then there’s the executives running the directorates, whose primary responsibility is to hide government incompetence and embarrassment. Strip out half a dozen from each directorate, and there’s another $12m.

Capital Retro6:14 pm 24 Jul 20

Well, teachers would make sense because a lot of schools are only half full. Many directorates are twiddling their thumbs at present because there is simply nothing happening. If there is no work why should people be “employed” and while it is not desirable to abolish jobs there is no law that says people are entitled to have a taxpayer funded job. It’s time to roll with the punches as “we are all in this together”.

Capital Retro6:18 pm 24 Jul 20

I agree with all that and perhaps the highly qualified experts leading directorates could earn their money by themselves scoping the work that is normally outsourced to consultants at huge cost to the taxpayer.

phillipbusinesscommunity6:32 pm 23 Jul 20

It is true that it is the Governments responsibility, if not duty, to take on debt when the economy needs the financial input.

As the Federal Government has been doing a majority of the heavy lifting in keeping businesses going in Canberra, it is potentially the best time (with interest rates as low as they have ever been) to take on debt to support the economy.

I must add the comment that the ACT does need to invest more into the local business environment in anticipation of a Federal Liberal Party doing what they do best and cut costs – when it they should invest. As a Territory is currently led by a Labor Government, I find the set of reactions at odds with a typical Labor approach.

What is needed is a long-term plan for jobs and local investment to rebuild an economy that is less dependent on the Federal Coffers – without charging people and businesses into the ground with rate hikes. Interesting times ahead.

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