Barr's balancing act as slowdown keeps Budget in red

The ACT Budget will remain in deficit longer and net debt will balloon to more than $12 billion as the Territory deals with the general economic slowdown and maintains its $8 billion infrastructure pipeline.

Higher interest rates, the rising cost of living and the increased cost of infrastructure delivery have forced the government to raise some taxes and charges and introduce new ones while also offering targeted assistance to Canberrans doing it tough.

Chief Minister and Treasurer Andrew Barr said the priorities of his 13th Budget were health, housing and cost of living, as well as getting on with the delivery of infrastructure that the growing city needed.

“We’ve sought to balance the competing economic needs and community needs in this budget whilst investing very heavily in health,” he said.

Most of the Budget initiatives have already been announced.

Health ($2.5 billion) and education ($1.8 billion) take the lion’s share of spending, but Mr Barr said there had also been a particular focus on housing through an expanded land release program and a range of tax measures that make it cheaper and easier for people to get into their first home.

Hits to revenue, including lower GST payments, will delay the Budget’s return to balance until 2026-27, with the Treasury forecasting a deficit for 2024-25 of $624.1 million, nearly $200 million more than predicted last year, before declining to balance over the four-year forward estimates.

The deficit for 2025-26 is expected to be $147.6 million, but small surpluses of nearly $80 million and $180 million are then forecast for the next two years, respectively.

However, Mr Barr said most governments were running deficits and large infrastructure programs, and the community had been very clear in consultation on what its needs were.

“I’m not here to deliver a surplus every year for ideological reasons,” he said.

“I’ve got to respond to the economic circumstances that our jurisdiction faces and the needs of this community.”

Net debt in 2024-25 is expected to be $8.9 billion, a billion more than forecast last year, and higher again in subsequent years to hit nearly $12.5 billion in 2027-28.

The interest bill amounted to hundreds of millions of dollars a year, but Mr Barr said the government was also earning investment revenue at the same time.

The Budget papers say the Territory’s Infrastructure Investment Program (IIP) is estimated at $8.1 billion over the five years to 2028-29, including a spend of $1.4 billion in 2024-25.

Mr Barr said investments such as health infrastructure and housing could not wait, but given the workforce and other constraints at present, the government had adjusted the staging of the infrastructure program.

He said some of the infrastructure that needed to be built in the next 15 years were once-in-a-century projects, such as the Canberra Theatre project, convention centre and stadium.

“I think it is reasonable when you are investing in that sort of asset that the costs of that be spread over multiple generations,” he said.

The convention centre and stadium would also be delivered in partnership with the Commonwealth.

Overall revenue is expected to be about $200 million less in 2023-24, with hits to GST, payroll tax, commercial conveyance duty revenue, land tax and gambling taxes – before recovering over the forward estimates. Revenue will still be down in 2024-25, but tax measures will confine that to $20 million.

GST, a quarter of ACT revenue, is expected to be $30.7 million lower in 2024-25 and $117.8 million lower over the three years 2024-25 to 2026-27.

However, the state of the economy and what Canberrans do with their tax cut from 1 July could mean higher GST payments from the Commonwealth, which would lift the ACT’s bottom line.

The Budget papers say that while the ACT economy rallied in 2023-24, economic growth is expected to moderate in 2024-25 and then strengthen gradually from 2025-26 as inflation stabilises and households have more to spend.

New tax measures are estimated to raise an additional $196.2 million over the forward estimates, although residential stamp duty cuts will cost the government $73.9 million.

New charges include a payroll tax surcharge for large national and multinational businesses with Australia-wide wages of over $50 million from 1 July 2024 to compensate for losses from APS staff insourcing. That’s expected to raise $20 million a year.

There will also be a Short-term Rental Accommodation Levy aimed at Airbnb properties from July 2025 of 5 per cent of gross revenue, estimated to be worth $12 million over the three years from 2025-26 to 2027-28. This is in line with other jurisdictions.

Mr Barr said the government wanted to bridge some of the revenue gaps in a way that had the least impact on ACT households.

He didn’t think these new charges would prove a disincentive to businesses and landlords.

“I don’t meet many Canberrans who think that large multinationals and the big big banks and supermarkets are paying too much tax at the moment,” Mr Barr said.

The Police, Fire and Emergency Services Levy charged on residential, rural and commercial properties in the ACT will rise 4.3 per cent above the Wage Price Index in 2025-26 and in 2026-27 to help pay for the increased cost of ACT Policing.

The Safe Family Levy will rise from $50 in 2024-25 to $60 and $70 in subsequent years.

Residential and commercial rates will go up on average by the expected 3.75 per cent under the government’s 20-year tax reform program. That could be higher or lower, depending on where you live.

The government is expected to reap $494.4 million from homeowners in 2023-24, increasing to $522.5 million in 2024-25.

Commercial property owners are expected to pay $268.8 million in 2023-24, increasing to $285.6 million in 2024-25.

General rates revenue is forecast to be $808.3 million in 2024-25, reaching nearly $1 billion ($982.7 million) in 2027-28.

While the government continues to cut residential stamp duty in line with its tax reform program, higher prices mean it will collect $254.8 million in 2023-24, $25.4 million more than expected.

However, revenue is forecast to decrease to $226.2 million in 2027-28 because of the increased concessions and reduced tax rates announced in the Budget.

Savings across the bigger agencies amount to $80 million over four years, but Mr Barr said these would not lead to any staff losses and were focused on government advertising, travel, supplies and services, and the use of consultants.