National

Public Service cuts take bite into ACT economy says CommSec State of the States

The ACT’s economy has slipped dramatically in the national ratings as cuts in the public service bite into business confidence.

Cuts to the public service have negatively affected the ACT economy.
Cuts to the public service have negatively affected the ACT economy. Photo: Ian Waldie

While the ACT is second-strongest on dwelling starts and employment, it is the weakest in the nation on business investment and construction work, according to a report to be released on Monday.

The territory’s relative positions on population growth and construction work have weakened markedly, says the CommSec  State of the States report.

"Low unemployment is a clear strength for the ACT economy, but weak confidence is constraining retail and business spending and future economic performance," the report says.

Another report due out on Monday, from Deloitte Access Economics, also contains sombre news.

While it says one surprising result is that job growth in Canberra over the past year was stronger than for the nation as a whole, cuts to the public service are dampening the ACT economy and more bad news is expected in the May budget.

The CommSec report compares each of the states and territories on eight key indicators including economic growth, retail spending and population growth.

The report compares the latest readings of these indicators with decade averages or what it calls normal performance, to rank the states and territories.

Western Australia remains the top-ranking economy in the nation but only just, ahead of the Northern Territory and NSW.

NSW has been the big improver, moving up from fifth ranking to third, but the ACT has been pushed back from  third  to  sixth, behind Queensland and Victoria.

The report says the ACT economy is up 15 per cent on its decade-average level of output but recorded a weak 2 per cent in trend annual economic growth.

Inflation-adjusted retail trade in the territory was up just 2.4 per cent on a year ago, suggesting the economy may slip further in next quarter’s ratings.

"The Northern Territory and the ACT have arguably the strongest job markets in the nation," the CommSec report says.

"In the ACT, trend unemployment is the lowest in the nation at 3.4 per cent and this rate is just 0.3 per cent below its ‘normal’ or decade average level. In other states, the latest unemployment rates are all above their decade-average levels."

Housing finance in the territory rose 1.9 per cent above the decade average, while housing starts were the second strongest in the nation, at 29 per cent higher.

The report says Canberra house prices are up just 1.9 per cent on a year ago.

 The Deloitte Access Economics business outlook  says the ACT economy has continued its charmed run.

"To be clear, there is undoubtedly a burst of bad news coming down the pipeline," it warns.

"Reading The Canberra Times and its long list of bad news stories around federal departments and agencies trimming their numbers is not something we’d recommend for the faint hearted.

"Yet to date the spectre of the guillotine above the public service remains exactly that – a spectre.

"Even retail sales have held up very well, though admittedly that sector has been a big beneficiary of the low mortgage interest rates of recent years, while the unemployment rate has dropped back below 3.5 per cent, having been above 4.5per cent a year ago.’’

The report says it does not expect the budget cuts to be as tough on Canberra as the 1996 budget.

"That said, the coming cuts – both those announced and those expected in the budget – are already having an impact on the ACT, dampening an otherwise resilient economy," it says.

"Whereas rising housing prices and consequent gains in building approvals have sparked optimism in the broader economy, the ACT missed out on the party invitation.

"Housing prices eased slightly in 2013, in contrast to good growth seen nationally.

"That gives rise to a double-whammy, as weak price growth does not lend itself to housing investment, which in turn can help to stimulate jobs and output.

"Although current growth is modest, that is mostly due to the shrinking housing construction sector, and the forecasts for 2014-15 are for the news to get worse, but not substantially so.

"We don’t project a disaster for the ACT – rather it’s a case of the economy gritting its teeth and looking forward to brighter times."

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