ACT Budget: GST wild card as Barr tightens reins with slowdown to hit bottom line

Continuing economic headwinds have dashed hopes of the ACT Budget returning to surplus in the 2025/26 financial year, but the unknown factor is what impact the Stage 3 tax cuts will have on GST revenue, which amounts to about a quarter of the Territory’s income.

Chief Minister and Treasurer Andrew Barr told Region he had framed a relatively low-spending budget, except for the record $2.6 billion on health, that makes savings across some agencies, takes measures to plug revenue gaps and smooths out the government’s infrastructure program but still manages targeted cost of living assistance to those who it need it most.

Sticky inflation, subdued household spending and weaker GST revenue mean this year’s deficit will be higher than forecast and the expected surplus in 2025-26 will not materialise before the budget returns to balance.

Increased Commonwealth spending had bolstered Territory growth, but Mr Barr said the big question was whether people spend or save the tax cuts that arrive on 1 July.

Treasury has erred on the conservative side, but up to $100 million a year could be at stake.

“If the tax cuts are spent on items that attract the GST, we could see an upside to our Budget,” Mr Barr said.

“If the spending is mostly on non-discretionary items, fresh food, for example, there’s no GST on that, so that’s the biggest unknown that can shift our Budget position.”

Mr Barr said the Territory’s debt position was largely in line with the Budget Review forecast and was a bit lower in this current fiscal year.

He said borrowing costs had increased due to higher interest rates, but the return on cash and investments had also risen.

The government had also made “pretty big progress” on fully funding the ACT’s superannuation liability.

“We’re getting ever closer to that liability being fully funded,” Mr Barr said.

“Once that is fully funded, that frees up more than half a billion dollars a year for debt reduction in the future.”

Mr Barr played down concerns about the Territory’s AA-plus credit rating, which had been downgraded from AAA.

“We’ve been engaging closely with Standard and Poor’s and looking at other jurisdictions and effectively what the key metrics are in that regard,” he said.

“We think we have restricted the growth of debt and increased revenue sufficiently in order to maintain that second highest possible credit rating of AA-plus.

“What you won’t see in our budget is some of the big spending that some other state budgets, notably Queensland, have put forward.”

Mr Barr said the Territory had taken a payroll tax hit from the APS insourcing of contractors, so the budget brought forward increases to payroll tax for large multinational and national companies to compensate.

He said savings had been made to non-employment and non-frontline related areas across medium and large agencies, totalling about $80 million over the forward estimates.

The government would also introduce a levy on short-term rental accommodation as other jurisdictions have.

Mr Barr said this was simply a revenue-raising measure, and he remained of the belief that it would not increase the housing supply as some had advocated.

The land release increases designed to boost housing would also increase revenue, but this went hand in hand with the stamp duty cuts to get more people into their own homes, which in turn would help free up properties in the rental market.

Mr Barr said this would be the 13th budget in a row that had cut stamp duty.

“I think the motivation here has been to look at the state of the market and who has the opportunity to participate in the housing market and who doesn’t and looking to support younger Canberrans, particularly first-time buyers,” he said.

“We’ve got about 200,000 dwellings in the city, just under 50,000 of those or around a quarter are rentals, so if you can assist several thousand people to move from renting to homeownership, you free up a bit of capacity because our objective is to get the rental vacancy rate up closer to 3 per cent from the sort of 1.5 it’s been sitting at.”

Mr Barr said the infrastructure program was set for the next four years and there was no capacity to increase it.

“There’s been a significant reprofiling of the infrastructure program,” he said.

“We’re not cutting any projects, but we have smoothed the delivery, and the easiest way to do that is with projects for which we have provisioned funding.”

Mr Barr said people should not expect new infrastructure commitments during the election campaign.

“There shouldn’t be an expectation that we’re going to come into the election campaign with a whole bunch of big infrastructure commitments that people haven’t already heard us talk about for the last three or four years because the really big projects take that amount of time to develop to a point that you can put them on the market.”

Mr Barr said the government had to be realistic about the infrastructure program and delivery timelines and flagged that it would be an election issue.

“Put simply, there aren’t enough workers and materials in Australia to deliver the range of promises that have already been made by some of our political opponents,” he said.

Mr Barr said cost-of-living assistance would be directed to the lowest 20 per cent of incomes and young people, with increases to the energy rebate, concessions and assistance for apprentices.

Mr Barr will hand down the Budget on Tuesday (25 June).