2 August 2022

ACT Budget: Territory to grow its way out of the red

| Ian Bushnell and Lottie Twyford
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Chief Minister Andrew Barr says debt is “very, very sustainable” given the ongoing strength of the Territory’s economy. Photo: Lottie Twyford.

A mix of increased revenue and the winding back of COVID-19 assistance has driven a dramatic improvement in the ACT’s bottom line, slashing the 2021-22 deficit and contributing to stronger outcomes over the next four years.

The government has also forecast economic growth of 3 per cent a year over the forward estimates.

A near billion-dollar deficit of $950 million forecast in last year’s budget has shrunk to $580 million, $190 million less than the Budget Review prediction. The budget papers show an improving situation of a $483 million deficit in 2022-23, a $344.9 million deficit in 2023-24, a $299.5 million deficit in 2024-25 and a $229.4 million deficit in 2025-26.

The government maintains that returning to a balanced budget will continue to be its goal over the medium term as it navigates the economic headwinds of inflation, the ongoing pandemic and the war in Ukraine.

But the government’s stimulus and big infrastructure spend means net debt, while less than forecast in 2021-22, will still rise steadily over the next four years.

It will double from nearly $5 billion in 2021-22, better than the forecast $5.7 billion due to deferred spending and higher tax revenue, to nearly $10 billion by 2025-26.

Chief Minister Andrew Barr told reporters today this level of debt was “very, very sustainable” given the ongoing strength of the Territory’s economy.

“The government’s budget is not like a household. The government never retires, its income and wealth grows every year – even in the deepest recessions, it rebounds quickly,” he said.

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Mr Barr yesterday rejected calls from the Opposition to conduct a major audit of the budget, including debt levels, arguing the only alternative plan to borrowing was austerity measures and major cuts.

He noted the ACT, like all jurisdictions, had borrowed heavily during the pandemic to fund a major infrastructure pipeline and support businesses and households, but it had done so when interest rates were extremely low and most of the loans had fixed terms of at least a decade.

Over time, Mr Barr said the debt would become a significantly smaller proportion of the Territory’s budget and inflation would eat away at the debt.

Furthermore, hundreds of millions of dollars were being put aside every year to fund the ACT’s superannuation liabilities. It’s forecast that this will be fully funded by 2030, freeing up around half a billion dollars annually.

In the same year, the tax reform project, in which stamp duty was being phased out in favour of higher rates, will be completed.

Mr Barr said both would mean additional revenue and a more stable revenue base for the government.

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Rising government revenue from rates and charges, land sales and a boost in GST payments thanks to population increases have buttressed the budget.

GST revenue this financial year is expected to be nearly $200 million before reducing to nearly $132 million in 2023-24, then rising slightly again to around $134 million in 2024-25.

The government has reassessed the ACT’s population growth after the 2021 census numbers showed a surprise jump to 454,000, up from an estimated residential population of 432,000.

The Budget papers say the ACT’s population growth rate is expected to progressively return to its pre-pandemic rate, reaching 2 per cent by 2024-25, driven by higher overseas migration and people coming from interstate.

Although this will increase pressures on services, the government welcomes the economic growth higher population levels bring.

And the greater GST from the Federal Government led Mr Barr to say the ACT was “finally getting the recognition we deserve”.

Government spending chart

ACT Government spending 2022-23. Image: ACT Government.

Rates revenue continues to grow as expected under the government tax reform program. As previously reported, rates rose by an average of 3.75 per cent on 1 July.

Mr Barr said all increases remained well below the rate of inflation.

Revenue in 2021-22 was estimated at $443.8 million; in 2022-23, it is forecast to be $471.4 million, up 6.2 per cent.

Revenue from non-unit titled properties is expected to increase by around 4.7 per cent a year from 2023-24 to the end of Stage 3 of tax reform (2025-26).

Revenue from unit titled properties is expected to increase by above 8 per cent, with strong growth in the number of new properties.

Commercial rates revenue in 2021-22 comes in at $230.4 million. Over the rest of the forward estimates, revenue is expected to increase by 5.5 per cent in 2023-24, and 5.7 per cent in 2024-25 and 2025-26.

Land tax revenue will also grow, to $172.1 million in 2022-23, an 8.9 per cent increase from the 2021-22 estimated outcome, reflecting expected strong investment in the Territory’s residential property market.

Land tax is expected to increase to $194.3 million in 2025-26, growing 4.1 per cent a year over the forward estimates period.

Despite the program of stamp duty cuts, Canberra’s hot property market means revenue is estimated to be $314.4 million in 2021-22, $49.4 million (18.6 per cent) higher than forecast in the Budget.

But the government says that without tax reform, revenue would have been $120.3 million higher in 2021-22 and $523.9 million higher over the budget and forward estimates period from 2022-23 to 2025-26.

More commercial conveyance duty revenue is also being collected, estimated at $118.9 million in 2021-22, $32.9 million (38.3 per cent) higher than the 2021-22 Budget estimate. This reflects higher transaction volumes and a stronger average sales price in higher value properties compared to the expectation at the time of the 2021-22 Budget.

Over the four-year period to 2024-25, total revenue from commercial conveyance duty is expected to be $42.6 million (13.7 per cent) higher than the estimate in the 2021-22 Budget.

The government says its long-touted stamp duty cuts form part of its cost-of-living assistance measures and can help those facing significant barriers to home ownership.

From 1 July 2022, the lowest stamp duty threshold for owner-occupiers has been increased from $200,000 to $260,000, reducing duty on homes between $260,000 and $1.455 million by $1120.

It also increased the Home Buyer Concession Scheme income eligibility threshold from $160,000 to $170,000, and the Deferred Duty and Disability Duty Concession Schemes price eligibility threshold from $750,000 to $1 million.

Mr Barr has previously said he anticipated the Territory will be better protected from inflationary pressures and cost-of-living mortgage rate hikes.

Long-term electricity contracts have also meant Canberrans have largely been shielded from major price hikes forecast for other jurisdictions.

The budget will also provide an additional one-off $50 payment to the 30,000 or so households receiving the Utilities Concession in 2022-23.

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Lucky they’ve increased the lowest Stamp Duty threshold from $200k to $260k. All those people who are buying $250k houses across the city will only pay sixty cents per $100 on their house purchase. ?

It’s not a very progressive tax reduction when you leave the other tax thresholds that sit well below the median Canberra house price at exactly the same tax level.

And surprise surprise, Stamp Duty collection continues to remain way above previous budget promises. Surely if house prices continue to decline we might finally fall short of conveyance tax revenue expectations. I predict this year will finally be the year for a stamp duty tax shortfall. But if house prices do fall and revenue still beats projections, then people should be asking questions.

The ACT Budget should have cancelled the light rail to Woden and allocated the money to health, education and welfare. The rail is a luxury discretionary item that can be simply replaced with express buses.

I don’t trust anything Barr says. As both Treasurer and Chief Minister, and with the vast “Economic Development” portfolio, there’s a clear corruption risk of a single person being a vertically integrated graft machine.
I remember the scandal in 2016 about Manuka Oval, with Fitzharris’ husband Pierre Huetter (an ex-Barr staffer), and David Lamont involved. I don’t trust Barr at all, and when Barr says everything is going well, I’m pretty sure we’ll all be dead or bankrupt or homeless or sold into slavery by Friday.

HiddenDragon9:08 pm 02 Aug 22

So net federal government debt, which is projected to be about 140% of revenues by 2025-26 is (as we are told several times a day) an absolute catastrophe which will take generations to deal with, but net ACT government debt, which is projected to be about 126% of revenues by 2025-26 is “very, very sustainable” – even though the latter is serviced by a much narrower revenue base, and dealing with the former may well have seriously negative consequences for the latter.

Sure.

“The government says its long-touted stamp duty cuts form part of its cost-of-living assistance measures and can help those facing significant barriers to homeownership”.
With respect Chief Minister, you speak horse-droppings.

The cost of living and Homeownership isn’t about the initial costs to buy the home.
In reality it’s about the ongoing costs to continue to own the property and that includes RATES.
Every year, Rates increase faster than wages. How is that helping with the cost of living or housing affordability?

In recent years (decades) the increased value of property has vastly outstripped wage growth as well, so it’s hard to claim that existing homeowners are hard done by in that regard compared to would-be owners.

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