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Challenging times ahead

There is little doubt that this year will be a challenging one for Canberra and for businesses in Canberra and the region. The 2013 14 Mid Year Economic and Fiscal Outlook (MYEFO), released on 17 December 2013, disclosed in detail how the Federal budget position had deteriorated since the May 2013 Budget — the total underlying cash deterioration over the forward estimates is $101.2 billion.

The MYEFO made it clear that, without policy change and taking no remedial action, budget deficits would be expected across the forward estimates (totalling $123 billion over the next 4 years) and in each and every year to 2023 24, with a $47 billion deficit expected in 2013 14 — 3.0 per cent of GDP. Basically on the revenue side the MYEFO reflected a softening in the economic outlook. It outlined how the Australian economy is expected to transition from resources to non resources drivers of growth but at a slower rate than previously forecast (2½ per cent in both 2013 14 and 2014 15). This will result in significantly lower GDP as it transitions and a reduction in tax receipts of more than $37 billion over the forward estimates.

On the expenditure side changes in demand driven programmes, will significantly increase payments across and beyond the forward estimates as large demand driven programs such as the National Disability Insurance Scheme (estimated to cost $22b in the first full year 2019-20) and Students First funding agreement for schools, begin to ramp up significantly. The Abbott Coalition Government has stated that this is an unsustainable situation and that the 2014 15 Budget will outline the hard decisions and fiscal strategy to return the budget to surplus and pay down debt.

In the meantime the unemployment rate is expected to drift up to 6¼ per cent by the June quarter of 2015 while slowing wage growth and household concerns around rising unemployment are restraining consumer spending, which is now forecast to grow in 2013 14 by only 2 per cent.

From the ACT’s perspective the MYEFO was interesting on two accounts. First, it took account of all of the Government’s election commitments with the exception of the $5.2b saving associated with the 12,000 headcount reduction in the public service through natural attrition. The Government said it remained committed to streamlining the public service, but would review the timing and approach to implementing its commitment in view of the expected headcount reduction required by the former government’s efficiency dividends and associated measures. Further decisions on the public service headcount will be taken in light of the findings of the National Commission of Audit.

Second, it included a number of unfunded policy issues inherited from the former Government including provisioning in the Contingency Reserve for the unfunded redundancies associated with the reduction of 14,473 APS staff implicit in the former Government’s policy settings. These redundancies were clearly decisions taken by the Gillard-Rudd Government but never clearly announced or properly funded. The Federal Government has flagged that it has two related goals: fostering economic growth, and returning the budget to surpluses. The Prime Minister has stated that his government will focus on policies that enhance productivity, improve efficiency and eliminate wasteful spending, reduce the regulatory burden on businesses and individuals, and reduce the size of government. The MYEFO suggests that up to 17,000 APS jobs could be shed over three years.

The big questions for Canberra are exactly where will the reductions in the size of government occur and over what period, and what impact will further cuts to the APS have on the private sector, business and consumer confidence and economic growth in Canberra and the surrounding region.

2014 will indeed be a challenging one for Canberra and for businesses in Canberra and the Region.

 

26 February 2014

Outlook2050 Luncheon with Professor Brian

Schmidt:Innovation for Canberra’s Future

12.30pm – 2.00pm

Hotel Realm

13 March 2014

ACT Chief Minister’s Business Address

12.30pm – 2.00pm

National Press Club

14 May 2014

Federal Budget Breakfast

7.00am – 9.00am

Parliament House

4 June 2014

ACT Budget Breakfast

7.00am – 9.00am

National Press Club

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