Helping Canberra’s economy recover from the shock of the COVID-19 pandemic is the task the ACT Government has set in the 2021-22 Budget, released this evening.
The pandemic has been “the most serious public health and emergency the Territory has faced”, Chief Minister and Treasurer Andrew Barr said, and the Budget sets out the recovery and rebuilding effort.
The government and many businesses have lost revenue this quarter, but the government is determined to grow the labour market to 250,000 jobs by 2025 and encourage investment to drive economic recovery.
“This is a full-throttle Budget to get Canberra’s economy moving again,” Mr Barr said.
Its priorities are to protect the health of the community, to ‘turbo-charge’ the ACT’s economic recovery, and to deliver on Labor’s election commitments.
Guiding ACT out of the pandemic would be challenging from both a public health and an economic perspective, Mr Barr acknowledged; the pathway to normal life was to rebuild the economy and to protect the most vulnerable in the community.
Through the Budget, he called on the public sector, private sector, and community to work together to quickly recover the ground lost over the course of the pandemic.
It was not, Mr Barr acknowledged, the budget he had intended. The 2021-22 Budget was originally to have been delivered at the end of August; his government had finalized the major decisions before the second wave of COVID-19 reached Canberra.
“We’ve had to fundamentally reshape the budget,” Mr Barr said. “I would not have presented a budget like this absent the pandemic and absent the circumstances that we find ourselves in, but we can and will recover.”
How has the pandemic affected the economy?
Mr Barr said the ACT economy had weathered the first 18 months of the COVID-19 pandemic reasonably well; economic activity has declined sharply this (September) quarter, but he expected the setback to growth to be temporary, and the recovery to gather momentum next year.
“There is a pathway back from where we are now,” Mr Barr said.
Retail turnover was at its lowest level since April 2020; it fell by almost 20 per cent ($120 million) in August, more than the 14.7 per cent fall last April. Nearly a third of the ACT’s 30,000 businesses have applied for COVID-19 Business Support Grants, while the ACT Government has provided more than $475 million through direct payments and tax relief measures to support local Canberra businesses, the Chief Minister stated.
The ACT Government has also lost revenue, because the economy has been less active, Mr Barr said. This includes at least $20 million on public transport revenue; the network is still running, but there are few passengers.
Household income would remain relatively resilient in the ACT, due to public sector support for businesses and individuals affected by COVID-19 lockdowns, the Budget stated.
“Strong public sector spending had bolstered growth, both directly in responding to the public health impacts of the pandemic and through the provision of support to households and businesses while private sector activity has progressively recovered,” Mr Barr told the Legislative Assembly.
The ACT’s strong economic foundations – achieved through increased and efficient expenditure, regulatory and tax reforms, and continued support for local jobs and vulnerable Canberrans – would enable the Territory to respond and recover, Mr Barr promised.
The Chief Minister expected the economy to begin its recovery this month, and to pick up pace in November and December.
“We anticipate a very significant consumer-led recovery,” Mr Barr said. “Businesses will be very keen for that, and there’s a lot of pent-up demand. … Canberrans are looking forward to being able to do a range of things they haven’t been able to do for a while.”
From deficit to recovery
The government deficit was expected to be $951.5 million in 2021-22 – $476.7 million higher than forecast in the 2020-21 Budget. Expenses in this fiscal year are expected to be $925.6 million higher than forecast in the last budget, and $1.65 billion higher over the three years to 2023–24. Net debt is forecast to increase to $5.7 billion in 2021-22 and to $9.6 billion by 2024-25.
The deficit reflected the cost of necessary COVID-19 expenditure, particularly business support and the public health response, Mr Barr explained.
He expected this deficit to reduce to $474 million in 2024–25. Fiscal stimulus (increased spending and investment) would help the economy recover.
“By investing today to support the economy, we are avoiding a bigger loss of economic output and jobs which would damage our economy and community for years to come, and place a larger strain on our Budget,” Mr Barr said.
But the ACT needs three years of consecutive $300 million dollar improvements to go from $900 million back towards balance, Mr Barr noted.
Despite the outbreak and the reintroduction of lockdown restrictions, the Budget predicted revenue would be $425.3 million higher in 2021-22, and $772.6 million higher over the three years to 2023-24, than forecast in the 2020-21 Budget, due to the ACT’s booming property market.
Last year’s Budget, Mr Barr pointed out, had foretold a deficit of $603 million, which ended up $250 million better, because the economy had recovered faster than expected.
In fact, the ACT economy had been remarkably resilient, the Budget stated. Gross State Product grew by 2.4 per cent in 2019–20, and was expected to grow by around 3 per cent in 2020–21.
The combination of the hit on revenue and the necessary COVID-19 expenditure had cut across nearly every level of government, Mr Barr said. The ACT’s task beyond this fiscal year, he said, was to grow its economy to bring in more revenue and to carefully manage future expenditure.
“It will be a task to climb our way back, but we’ll get there quicker if our economy is growing faster. A stronger economy means stronger revenues for government.”
Although realistic, Mr Barr was not discouraged. “Over the coming months, we will re-emerge as a regional economic powerhouse,” Mr Barr said. “We will face challenges. There will be setbacks. But today’s Budget is another step towards coming out of this difficult time stronger, together.”
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