Over the coming six weeks all eyes will turn to the Commonwealth Budget and its implications for the Territory.
The employment and spending cuts expected to be inflicted by the Commonwealth’s Commission of Audit and 2014-15 Budget are creating uncertainty in Canberra – making households and businesses more cautious to spend and invest.
There is no doubt that economic growth in Canberra will take a hit from the deep cuts to the Public Service and other decisions expected in the Commonwealth Budget.
But our longer-term economic prospects are brighter than might first be expected.
The budget position of the ACT Government, and the economic position of the ACT economy more broadly, are sound. Our fundamentals – such as levels of growth, debt and investment – remain strong.
Provided there are no further significant economic shocks, we expect to return to a balanced budget in 2015-16. Our economic conditions remain positive – despite the challenges presented by continued Commonwealth contraction – and the growth forecasts for remain unchanged since June last year.
The ACT also continues to have one of the highest population growth rates in Australia and the highest average wages. Combined with low interest rates, these factors are expected to result in improved household consumption, which is good for local businesses.
On the downside – and despite having Australia’s lowest unemployment rate and second-highest workforce participation rate – job security concerns are likely to mean see cautious consumer spending in the short term. We cannot escape the decisions of our biggest employer, the Commonwealth, and we are anticipating employment growth will slow in 2014-15.
Our economy has been remarkably resilient in the face of the recent uncertainty. Revenues are broadly in line with expectations and are holding up well. We have the scope to take up the challenge of responding to Commonwealth cuts. Our current levels of revenue and low levels of debt allow for the Territory Government to continue a program of infrastructure investment.
The Government pushing ahead with significant infrastructure projects has two key effects. First, it provides the important facilities that the city needs in health, education and transport. The Capital Metro and City to the Lake and projects are significant infrastructure investments that will redefine how our city functions, and will also generate thousands of new jobs. The University of Canberra Public Hospital is a significant new investment in health facilities, as are investments in the Tuggeranong and Belconnen Community Health Centres.
Second, the investment helps keep our economy ticking over – taking up some of the slack caused by the Commonwealth’s lower spending.
The ACT Government must respond to these economic conditions with its eyes open. We are only 9 per cent of the Territory’s economy so stimulus measures must be measured and targeted.
But, crucially, our budget position gives us the ability to provide this stimulus. The budget review shows our levels of debt are low by national and international standards, and we have a AAA credit rating – meaning we can borrow to fund infrastructure that will boost our economy.
The forthcoming ACT Budget will maintain the Government’s discipline on new recurrent spending, and make targeted savings – in order to help us to return to balance; there will be no slash and burn. Meanwhile, we will continue investment in the key infrastructure projects.
The ACT economy continues to show signs of resilience in the face of uncertainty from the Commonwealth, and with the right mix of tax reform and targeted new spending, we can continue to support our economy, and through it our community.
Chief Minister of the Australian Capital Territory (ACT)