The ACT's budget is not sustainable in the long term and the government's predictions for softer inflation in the territory are likely too optimistic, an independent analysis has warned.
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The analysis of the ACT budget said long-term tax reform to increase general rates in the territory would cover just a third of lost revenue when commercial and residential stamp duties are reduced, and could be a sign the government did not intend to make up the shortfall with rates alone.
The Pegasus Economics review, commissioned as part of the Legislative Assembly's estimates process, also said the ACT had been "quite optimistic" with its population predictions.
However, growth in government spending in the budget and forward estimates was modest and lower than expected given the rate of inflation and the capital's expanding population, the assessment said.
"The medium-term outlook is better than forecast in either of the past two budgets. ... This represents a positive reversal of the trends historically seen in ACT budgets," the assessment said.
"The ACT budget is particularly dependent on Commonwealth funding and growth in the Australian public service. A return to surplus for the ACT government will require favourable economic circumstances and considerable fiscal discipline over a long period of time."
The analysis said the territory had a strong balance sheet but all measures were expected to deteriorate over the forward estimates, and unfunded superannuation liabilities were the biggest liability on the balance sheet.
The analysis noted net financial liabilities had more than doubled since 2012-13 and were forecast to almost triple by 2025-26.
"Over the same time, net debt will have grown from around $100 million in 2012-13 to more than $5 billion currently and almost $10 billion by the end of the forecast period. Net worth has grown in absolute terms over this period but at a much slower rate," the analysis said.
"When expressed as a proportion of gross state product, all of the territory's key balance sheet measures are expected to deteriorate over the budget and forward estimates period."
The analysis said the government had a remote chance of extinguishing the unfunded superannuation liability by 2030. The ACT government has said it has a funding plan for the superannuation bill.
The report expressed reservation over the government's short-term consumer price index assumptions, which it warned were likely too low.
The ACT government has predicted inflation to run at 3.75 per cent through to the end of June 2023, between 1.5 and 2.5 per cent lower than the national average when compared to the Reserve Bank forecast of 6.25 per cent in 2022-23 and the Commonwealth's prediction of 5.25 per cent.
The government - and Chief Minister Andrew Barr - have argued lower electricity costs in the territory would help insulate Canberrans from soaring national inflation levels.
"This is unlikely to result in a large discrepancy between the [consumer price index in Canberra and the national result," the analysis said.
"Any benefit ACT residents are likely to receive from lower electricity prices arising from green energy supply arrangements are likely to be partially offset from higher natural gas prices flowing through to consumers from recent gas price rises."
But the analysis found the ACT's predictions for wages growth to be in line with the Commonwealth government's and said they appear to be reasonable.
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The analysis - written by Alistair Davey, Brett Kaufmann, Roger Fisher and Susan Antcliff - noted population growth forecasts in the budget were quite optimistic compared to other national predictions.
The ACT expects the population to grow by 2 per cent by 2024-25, a return to the pre-pandemic rate. But the Centre for Population has predicted the growth rate would reach 1.5 per cent in 2023-24 and remain stable.
The 20-year tax reform program to abolish stamp duty, which began in 2012-23, is not on track to cover the lost revenue in its third stage, which lasts until 2025-26.
"It appears that the reduction in revenue from commercial and residential conveyances will far exceed the increase in general rates as an overall percentage of ACT government own-source taxation revenue," the analysis said.
"Based on the forward revenue estimates in the 2022-23 ACT budget, the expected increases in general rates by 2025-26 will only make up less than one third of the shortfall in revenue from reductions in commercial and residential conveyance revenue, in turn suggesting the ACT government is not seeking to replace revenue lost from phasing out reductions in commercial and residential conveyances entirely from increases in general rates."
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Jasper Lindell
Jasper Lindell joined The Canberra Times in 2018. He is a Legislative Assembly reporter, covering ACT politics and government. He also writes about development, transport, heritage, local history, literature and the arts, as well as contributing to the Times' Panorama magazine. He was previously a Sunday Canberra Times reporter.
Jasper Lindell joined The Canberra Times in 2018. He is a Legislative Assembly reporter, covering ACT politics and government. He also writes about development, transport, heritage, local history, literature and the arts, as well as contributing to the Times' Panorama magazine. He was previously a Sunday Canberra Times reporter.
