In its budget handed down earlier this month, the ACT Government clearly focused on projects providing direct economic stimulus to the territory as well as potential environmental benefit.
The Tune Up Canberra initiative is an example. It offers incentives for commercial property owners to improve energy efficiency in existing buildings. This budget also simplifies and clarifies the change-of-use charge and reduces rates.
The ACT budget also increased funding to the ACT Planning and Land Authority to provide professional and timely service, and for a range of infrastructure works supporting the land release program, and to support projects which deliver direct economic stimulus into the territory.
In spite of these and many other good initiatives, however, the Property Council has serious concerns about the territory's deteriorating financial position.
There is no doubt that the ACT is having to deal with the unprecedented triple whammy of the impact of the global financial crisis, the downturn in the property market, and spending cuts by the Federal Government.
GST payments to the ACT will be reduced by $186 million over four years, a loss partially offset by general revenue grants and special purpose payments ($141million greater than forecast in the ACT budget). So even with all Federal payments taken into account, Canberra is worse off than expected by $45 million over the next four years.
Before this was known the ACT Government expected to accumulate operating deficits of more than $1billion by 2012-13, with the budget not balancing again until 2015-16. The Government will now be forced to find further savings in coming budgets because of reduced GST income. The savings and revenue required are daunting.
Considering the ACT Government's track record on spending, it will need much greater commitment and discipline to achieve its budget targets. Since 2002-03 actual expenditure has exceeded planned expenditure by $735million an average of $105million each year. This record must improve to avoid crippling taxes or prolonged debt.
From 2002-03 to 2008-09 the average annual rate of increase in government expenditure was 8.8 per cent. If this rate continues, expenditure in 2012-13 will be $4278million, or $180million more than estimated in the budget. That would bring the operating loss to $476million by 2012-13.
However, the budget assumes that government spending will only increase by 4.2 per cent. It is difficult to see how that will be possible without cutting programs and services, when from 2002-03 the annual increase in spending has been more than double that rate.
Worryingly, the ACT economy still relies too heavily on a very narrow tax base. The ACT Government depends on Federal Government grants (mainly GST) and taxes on ACT property for some 60per cent of its total revenue, and that weakness is getting worse.
In 2009-10 property taxes account for 50per cent of all ACT tax revenue, with that burden projected to increase to 52 per cent by 2012-13. And property taxes, already very high, are also increasing much faster than other revenue sources. Over the five years to 2007-08, conveyancing taxes increased by 57 per cent more, and total property taxes by 54 per cent more, than total government revenue.
At present the ACT Government shows little appreciation of the longer-term consequences of such a creeping reliance on property taxes, and has announced no plans to broaden the tax base or reform the tax system.
This trend clearly cannot continue without eventually losing investment in property, which will reduce the tax take and, inevitably, further impact publicly funded services.
One thing governments can do to bolster economies is provide support and injections of capital for infrastructure works. Infrastructure is important, not only because of the jobs involved in delivering it in the short term, but because it provides community assets in the longer term.
Regrettably, the Federal Budget provided almost nothing for ACT infrastructure projects. One reason for this may be the lack of a long-term infrastructure plan a project which has ACT Government commitment but, as yet, no action. On the plus side, however, the ACT Government has committed $762million for new and current capital works. The ACT Government has also taken a sensible approach in terms of funding for delivery of some of these works, using government debt to invest in infrastructure an innovative and practical approach which will ensure that future generations who benefit also share the bill.
The Government has made a public commitment to consult with the community over the coming year on budget decisions and management of the territory's economy. The task is to live within our means and, at the same time, foster an environment favourable to investment and job creation.
Catherine Carter is ACT executive director of the Property Council of Australia.
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