The ACT's standard of living went backwards in the past year, according to new research by the University of Canberra. It was the only state or territory to go backwards in the national index.
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Cuts by Labor and Liberal governments to the public service are being blamed for a result that found households in the capital nearly $700 worse off, according to the research by the National Centre for Social and Economic Modelling.
The ACT lagged far behind the biggest gainer, the Northern Territory, where households surged ahead by $3500.
NATSEM lead researcher Ben Phillips said Canberra's "golden years" were over.
The centre found living standards were continuing to rise across the nation, albeit at a reduced rate, but the big winners this year were the under-35s, whose living standards were improving more quickly than older Australians.
Mr Phillips, whose research team worked with analytics software company SAS to compare ABS price and income data to provide a snapshot of living standards, says that Canberra's much-publicised housing, grocery and other household prices had little to do with the retreat of living standards.
Rather, the result could be attributed to slow or non-existent wage growth in the city's dominant public sector.
But the report found that Canberra households were still almost $50,000 better off each year on average than they were in 1988, easily outstripping their neighbours in NSW, who were only $32,000 ahead in the same period.
Only households in the Western Australia and the Northern Territory had fared better than the ACT in the 27-year period, and Mr Phillips pointed out that standards of living in Canberra were still up there with the very best in the nation despite the recent reverse.
However, the latest result underlined the close link between public sector wages and the city's economic pulse.
"I think it's because [of] the last couple of budgets, but particularly cuts that both Liberal and Labor have made to the public service," he said.
"So wage increases have not been very strong in the past couple of years and it's not just the Liberals but it's Labor too that have put the squeeze on the public service. That's the main driver of what's going on in Canberra.
"So after many, many golden years, things have been a bit tougher, a bit quieter in the past few years."
Low petrol prices and interest rates have relieved cost-of-living pressure in Canberra in past years, taking the edge of the negative living standards result, Mr Phillips said.
"Cost-of-living pressures have been pretty flat in all cities in the past couple of years, so the difference between Canberra and other states is the income growth has not been as strong as in the past or what it is in other states at the moment," he said.
"That's what's taken Canberra back.
"But it remains the case that Canberra's general standard of living is very high and is one of the highest in the country, right up there with Western Australia."
Elsewhere, Mr Phillips said he and his colleagues had been surprised to find that the disposable income of households headed by a person aged under 35 had grown more strongly between 1988 and 2011 than for older Australians.
"You often hear a lot about inter-generational inequality and how older people are getting all the benefits these days and all that is true, but [under-35's] incomes appear to be growing more strongly than older households," the researcher said.
"Things that would drive that are higher education levels, the under-35s coming through today are much more educated than the under-35s, say, of 25 years ago.
"Another factor is that women are holding off having children to a later age, and women are much more educated, so you're getting a much stronger drive of female incomes."
