ACT budget relies on land prices that push home ownership out of reach: former Treasury official

ACT budget relies on land prices that push home ownership out of reach: former Treasury official

Chief Minister and Treasurer Andrew Barr has defended his budget in the face of strong criticism from a former Treasury official, saying the government is "maintaining a measured and responsible path to surplus".

Former ACT Treasury official Khalid Ahmed said this week the ACT budget is in much worse shape than it appears, and is overly reliant on land sales at exceptionally high prices that inflate house prices and put home ownership further out of the reach of Canberrans.

Khalid Ahmed is not confident the forecast return to surplus will hold.

Khalid Ahmed is not confident the forecast return to surplus will hold.

Photo: Rohan Thomson

"There's a question mark around the credibility of the forward estimates, I would put it quite bluntly that way. It's difficult to see how the operating result can improve so dramatically over the coming years," Dr Ahmed told The Canberra Times. "It's unsustainable in terms of the reliance on land development and land revenues."

Dr Ahmed is familiar with the ACT budget, as director of policy development in Treasury from 2001 to 2013.

He said residential land had sold for "exceptionally high prices" in the past year in "constrained auctions" (auctions where the Land Development Agency releases small parcels, increasing competition and so pushing prices up).


Now, the 2016-17 budget forecast a $94 million increase in the dividend from the Land Development Agency – reflecting a continuation, even exacerbation, of the very high prices.

Dr Ahmed has previously raised concerns about artificially high land prices in Canberra, saying people in the new suburbs of Molonglo and Lawson paid at least $100,000 more than the land was worth.

The government expects $630 million from land sales during the next 12 months and more than $500 million a year in each of the three years after that. Although the amount made from land sales is relatively stable, the profit continues to increase.

But Mr Barr said the dividend from the Land Development Agency was just over 2 per cent of total revenue.

"It is an important revenue source, but it raises less or about the same as payroll tax, commercial rates, residential rates, land tax, stamp duty, and motor vehicle registration," he said.

He accepted that the ACT had a finite supply of land in the long term, which was one of the reasons he was abolishing conveyance duty, he said. Housing affordability had been an issue around the country, and the ACT's Housing Affordability Action Plan had "ensured moderation in prices"

The ACT had not seen the large spikes of Sydney and Melbourne and was still judged the most affordable jurisdiction for housing in the country. The Real Estate Institute's March quarter report showed the average ACT homeowner spent 19.3 per cent of family income on mortgage repayments – well below the national average of 30 per cent.

Dr Khalid said even though much has been made of the improved budget deficit, forecast at $182 million for 2016-17, the figure had worsened by $59 million since the budget review in December. That is despite a massive $159 million increase in revenue, offset by an extra $215 million in spending.

On the revenue side, $94 million extra was expected from land sales, $42 million extra from tax, mainly stamp duty, but also the Safer Families Levy, and $51 million from Commonwealth grants.

Dr Ahmed said that, perversely, the increase in Commonwealth grants had come about partly because there had been fewer property sales compared with other states, and this is judged to reduce the ACT's ability to raise money from stamp duty – resulting in the Commonwealth giving Canberra a higher share of GST revenue ($28 million more for this reason). So the ACT's undersupply of land had meant fewer property sales, which had perversely resulted in more money from the federal government.

Commonwealth grants are also higher because private sector employment growth is judged to be not keeping pace with the rest of the country, leaving the ACT comparatively less able to raise payroll tax.

Under Jon Stanhope's government, with increasing concern about reliance on land sales, budget reporting changed so only profits from land sales are included in the budget bottom line, not all revenue from land sales as previously.

But Dr Ahmed said the question is whether the Land Development Agency's profits are in line with private sector profits, of 10 to 20 per cent.

"The answer is clearly no," he said. "If their profits are higher than the private sector then obviously they are gouging more profits from land than a private developer and why are they doing that? Because they are the monopoly."

Dr Ahmed said the recovery in the forward years, a return to surplus in 2018-19, was even more "miraculous and unbelievable" than this year's figure.

"What are the measures for improving the structural deficit other than just selling land, which is unsustainable?"

An independent report from Pegasus Economics on the 2016-17 budget also cast doubt on the return to surplus, and pointed to an underlying problem in recent years – that spending had outstripped revenue year after year.

But Mr Barr said the ACT economy was on the rebound, which would help the budget return to surplus.

Kirsten Lawson

Kirsten Lawson is news director at The Canberra Times

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