Canberra could become increasingly vulnerable to a financial crisis if recent budget trends continue, an independent report into the ACT’s fiscal sustainability has warned.

The Select Committee on the Fiscal Sustainability of the ACT today published the final report of its specialist advisor, independent economist Saul Eslake.

The report found that the ACT public sector’s financial position has significantly deteriorated over the past decade, particularly during the past five years, because of both the COVID-19 pandemic and ACT Government policy decisions:

“To spend more on both delivering services and providing new infrastructure, without raising sufficient additional revenue from its own sources, or obtaining them from the Federal Government, to cover that additional spending. Some of those additional spending decisions, particularly during the Covid-19 pandemic, were unavoidable: but many others, especially during the past three years, were not.”

Mr Eslake’s interim report, released in March, argued that the ACT now has one of the weakest budget positions in the country, running persistent deficits and heading for net debt of almost 20 per cent of gross state product by 2026–27. It found that government decisions to increase spending have reduced the ACT’s operating balance by more than $6 billion over the past decade; expenses alone added $7.2 billion to deficits. New revenue measures recovered only $900 million. Major infrastructure projects — totalling at least $5.7 billion — were all funded by borrowing.

Mr Eslake’s full report warns that the ACT’s financial position could become unsustainable if trends in ‘operating’ and capital spending, revenues, and deficits continued.

The 2025–26 ACT Budget set out plans to tightly control spending; cut back future infrastructure spending; and raise more revenue, including through higher taxes. If everything goes to plan, the ACT’s finances could be back on a sustainable path by the early 2030s, but if the government misses its targets, as happened in recent years, the financial position could keep getting worse.

Mr Eslake said the government’s budget repair strategy was too vague, and advised the government to replace it with a clearer plan to reduce debt and return the ACT to surplus. He said the ACT should aim not only for operating surpluses, covering day-to-day spending, but also cash surpluses, which include infrastructure costs, before the end of the decade. He also called for targets on debt and interest payments, and regular public reporting on whether the government was meeting them.

The ACT Government said it would consider Mr Eslake’s recommendations in future budgets.

Treasurer Chris Steel MLA said the report showed “the Territory’s fiscal challenges have no silver bullet solutions”.

“The choices before the Assembly about the budget are fundamentally political choices about raising revenue, or cutting or reprioritising services.

“We are a progressive government, and we don’t shy away from the investments that we’ve made in our growing city. Investments to expand public health services, in public education, in transport, in cost-of-living relief, and in additional funding to support our community sector and new community facilities.”

Mr Steel also argued the report showed that the ACT was around the national average for fiscal sustainability and taxed below the national average, including lower than NSW or Victoria.

The Canberra Liberals said the report “delivered a damning verdict” on the government’s economic management. “Years of reckless spending and poor financial decisions have placed the Territory on an unsustainable path.”

Canberra Liberals Leader Mark Parton said: “Saul Eslake’s interim report was a wake-up call. His final report should be the end of Labor’s deflection and denial. Labor has made conscious decisions to increase net debt ten-fold in a decade, with half of that happening in the last three years. It was never bad luck. It was their conscious choice. The Territory’s finances have deteriorated because Labor chose to keep spending more without a credible plan to pay for it.”

Shadow Treasurer Ed Cocks MLA, Shadow Minister for Youth Affairs, said young Canberrans and future generations would have to pay “the entire cost of Labor’s big vanity projects, and the cumulative burden of over a decade of borrowing to pay for today’s services”.

“The report shows that Canberra’s problems are not yet insurmountable,” Mr Cocks said. “The Government is not yet insolvent. But the Budget isn’t going to fix itself. It’s going to take honest budgeting, disciplined spending and a credible path back to fiscal sustainability. The report shows how the Government has failed Canberrans on each of these fronts.”

Mr Steel said the Canberra Liberals had ruled out Mr Eslakes’s primary suggestions to raise revenue before his report (that they proposed) was even delivered.

“The Government will take the report seriously and respond to the Committee’s recommendations when they’re handed down, and it will be important for all parties to the Assembly to engage in productive, good faith discussions about the Territory’s plans to maintain fiscal sustainability.”