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ACT facing recession: report

Richard Denniss, Executive Director with the Australia Institute.

Richard Denniss, Executive Director with the Australia Institute. Photo: Alex Ellinghausen

Planned Coalition cuts to the public service could plunge Canberra into an economic nightmare worse than the downturn of the mid-1990s, according to a new think tank report.

According to the Australia Institute, even the "best-case" scenario of the Coalition's intentions to downsize the bureaucracy carries a high likelihood of pitching the capital into recession with knock-on job losses felt throughout the local economy.

In its technical brief title ''Cut Cut Cut'', the left-leaning group outlines a bleak vision for the city under a Tony Abbott-led government, with 6000 to 12,000 public service jobs slashed, leading to thousands more job losses in retail, hospitality, construction, trades and services.

Australia Institute executive director Richard Denniss calculates as many as 5500 non-public servants could join the dole queues if the city bears the full brunt of the 12,000 job cuts, as stated repeatedly by shadow treasurer Joe Hockey. If the cuts are spread around the nation, as local Liberal politicians have stated, Dr Denniss predicts up to 2500 jobs will be lost as the shockwaves from 5400 axed public service jobs spread through the local economy.

A copy of the brief was provided to the offices of Liberal senator Gary Humphries and the party's Senate candidate Zed Seselja on Friday. In a response received after The Canberra Times' deadline, the local Liberal campaign said, "The Australia Institute is a left-wing think tank … and therefore have an obvious bias in their research.''

According to Dr Denniss, the "worst-case scenario" would see $694 million ripped out of household spending each year in the capital. This would include $79 million less spent on groceries, $33 million less on furnishings and appliances, $35 million less in cafes and restaurants, $6 million less on hardware and $7 million less on repairs by tradespeople. The institute says reduced spending would see 1100 jobs lost in local shops and 337 jobs lost in hospitality, cafes and takeaways.

Reduced demand for services from the public service could see 506 fewer jobs in professional services, 376 fewer jobs in IT, 225 fewer jobs in office services and 137 fewer jobs in property services, according to research by Dr Denniss.

"Cuts on this scale are very likely to cause a local recession," the economist wrote. "Even the best-case scenario for Canberra would wipe out most growth in Canberra's economy and, combined with existing cuts, could cause a recession."

In its report, the institute compares the looming cuts to those of the 1990s, which it notes began under the Keating Labor government and intensified under the Howard government in 1996. "Canberra's economy is sensitive to deep cuts to the APS," Dr Denniss wrote. Economic growth fell far behind the national average between 1995 and 1998.

"Unemployment spiked and thousands moved away to find work - 135 extra people went bankrupt.

"House prices fell from 1993 and took six years to recover, by which time they were 30 per cent behind national prices.''

The Canberra Times revealed on Thursday the Coalition plans to start axing jobs as early as October 1 if it wins power. The institute says it will be difficult to achieve the targeted cuts without forced redundancies.

"In 2011-2012 around 7 per cent of all staff left the APS and similar patterns of separation have been seen over the last five years," Dr Denniss wrote. "So cutting more than 13.5 per cent of staff in any unit or agency over two years will almost certainly involve redundancies."

He said Canberra's economy was set to take a hit whichever of the two major parties won.

"Even the smaller cuts under Labor are likely to have an impact," he wrote.

"But the Coalition's cuts are so large they could cause a recession in the ACT.

''The best-case scenario would have a bigger impact on Canberra's economy than the mid-1990s cuts to the APS.

"There will be big impacts across demand for services, spending and jobs in shops and restaurants, as well as flow-on effects on property prices and construction."

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