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ACT economic outlook

Medium term pain, but longer term gain says Deloitte

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13 June 2014: Federal spending cuts and public sector job losses will hurt the ACT’s economy in the next year or two. Yet the underlying momentum in Federal spending remains solid, while last week’s ACT budget – including flagged infrastructure investment – suggests a more positive longer term outlook.

An extensive assessment of both the Federal and ACT budgets was presented to a Deloitte business forum in Canberra yesterday. The event included a panel discussion featuring ACT Treasurer Andrew Barr, ActewAGL CEO Michael Costello, Colliers International ACT Chief Executive Paul Powderly and Deloitte Access Economics Director Chris Richardson.

Key ACT Budget points included:

  • A forecast deficit of $333 million for 2014-15, larger than the previous year due to increased spending of $139 million and an expected revenue decrease of $86 million.
  • Deficits to fall over the forward estimates until a modest surplus is achieved in 2017-18.
  • $2.5 billion of capital works over four years.

According to Deloitte Access Economics’ Chris Richardson: “The Federal Budget hasn’t really changed the overall picture for the ACT’s economy that much.”

“When it comes to spending cuts, and in spite of all the talk of a brutal Federal budget, this one wasn’t particularly tough. There will indeed be short term pain through to early 2016 in terms of Federal public sector layoffs, but these have been known for a while.

“Although an extra 2,000 positions were sliced from the Federal footprint, but they merely sit on top of the 14,500 positions lost due to decisions announced by Labor while it was in office.

“And while the Feds have sent a shot across the bows of the states and territories, it would be surprising if too much comes of that. State and territory budgets released since their Federal equivalent have shown no signs of panic.

“The good news is that, even if all the cuts announced in the Federal budget get through the Senate, the decisions in the budget merely dial Federal spending back to an average of 2.7% real growth a year for the coming decade, compared to an actual annual growth of 3.0% over the past 10 years. Labor had promised to cut spending back to an average of 2.0% real growth – which would have been much tougher.

Deloitte’s Canberra Office Managing Partner, Lynne Pezzullo, facilitated the panel discussion and said: “As is true federally, the ACT budget is actually in worse shape than the ACT economy. While the budget has been threatened by health and education costs shifting from Federal Government to the states and territories, the economy will benefit on a number of fronts.”

“First, the economic stimulus package of infrastructure investment, such as light rail and ActewAGL capital works, as well as opportunities presented by the Commonwealth Government’s Asset Recycling Initiative, will provide a welcome boost in the longer term.

“In addition the deceleration of land releases will assist in supporting property prices, and inbound Asian capital injections are helping fund new construction, as well as assisting international airlines to expand capacity to Canberra routes.”

NB: See our media releases and research at www.deloitte.com.au

Last Updated: Thursday, 12 June 2014

Media contact:

Simon Rushton
Deloitte
Corporate Affairs and Communications
Tel: +61 2 9322 5562
M: +61 450 530 748
srushton@deloitte.com.au

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