Cuts to hurt but ACT may escape worst
The ACT economy is believed to be strong enough to withstand another round of federal government cuts. Photo: Marina Neil
The ACT should expect a rapid loss of spending in the near future but the economy may have enough momentum to lessen the damaging impact of cuts, according to a study to be published today.
Deloitte Access Economics says Canberra's housing construction will turn down because the biggest employer in town, Defence, will be under orders to ''pull in its horns''.
Just hours after Deloitte's Business Outlook is released, Treasurer Wayne Swan will unveil another round of cuts, in the midyear budget update, some of which will hit Canberra.
''We've already identified more than $130 billion in savings over five budgets and this will be the fourth consecutive midyear update to make savings to the bottom line,'' he said yesterday.
''To put this into perspective, the budget bottom line would be $14 billion lower this year without the long-term savings, blowing out to a $51.4 billion shortfall in today's dollars in a decade's time.''
The government will close a loophole that allows a very small group of employees to use salary sacrificing to get taxpayer-funded discounts for things like theatre tickets and V8 Supercar tickets.
The opposition said the early release of the update was unprecedented and accused the government of trying to hide the truth about the state of the budget.
As the government struggles to achieve a surplus, it is believed an extraordinary $21 billion has been wiped from its projected tax revenue in a matter of months, as a result of deteriorating international conditions and collapsing export prices. The cut means that to deliver this year's promised $1.5 billion surplus, the government will need to find an extra $4 billion.
Finance Minister Penny Wong said the cuts to be unveiled today would affect the most vulnerable the least.
Mr Swan will say the change to one element of the fringe benefits tax concession does not mean the government will change salary sacrificing more broadly.
The budget update will say the unemployment rate will remain at 5.5 per cent for 2012-13 and 2012-14, as forecast in the budget in May.
Opposition Leader Tony Abbott predicted the review would include broken promises, higher taxes and ''cooking the books''.
Another study out today, CommSec's State of the States, says the ACT is in the strongest position in the nation for new housing construction but activity is slowing down and the territory has lost second spot on overall economic performance to the Northern Territory.
''The ACT economy is little changed from three months ago, supported by solid dwelling starts and above-average population growth; but simply the Northern Territory has more momentum at present,'' it says.
The first payments under the watered-down mining tax are due today. ''If there's a big shortfall on budget expectations, then a short-term surplus becomes even harder,'' the Deloitte study says.
Possible savings could come from cuts to university research grants worth $240 million, Medibank Private delivering a $300 million special dividend to the government, superannuation arrangements, a 25 per cent increase in tobacco taxes and deferring Defence acquisitions.
The Deloitte study says the biggest short-term swing involves the public sector. ''Now both the states and the feds are jumping on the anchors,'' it says.
It says the good news for the ACT is that the economy improved in recent months due to lowered interest rates. Cafes and restaurants were better patronised and car sales were up.
''Moreover, although renovation work is dropping off, there's still a slew of new housing construction under way in what were once pine forests and that is helping to power local growth,'' it says.
''Chances are that the good news on housing activity has enough momentum to last until early 2013, although from then the housing cycle will be a drag on local growth.
''And by then, in fact in the next few weeks, we'll find out how big the butcher's bill will be in the next round of cuts to help cement a surplus in 2012-13 and 2013-14.
''Hopes are high that the release of the midyear review of the federal budget won't reveal many new cuts that will have much effect in Canberra.
''If the rumours are to be believed, the backfilling to be announced will concentrate on savings in superannuation, in Defence, and in mining-related programs.
''That combination is not one that looks particularly dangerous for Canberra, because it is much more about revenues than spending and more of spending outside of Canberra anyway, such as Defence acquisition.''