The ACT’s financial position is weakening over time, with increasing net debt and financial liabilities, despite a forecasted return to surplus by 2026–27, warns Pegasus Economics’ Review of the ACT Budget 2024-25.
“The ACT has moved from the position of being a net creditor at the beginning of the last decade to having a substantial and increasing debt and interest burden in the Budget and forward years,” the Review states. “The recent downgrade of the ACT credit rating is an indication of its weakened position.”
The Budget forecasts a significant net operating deficit in 2024–25 ($642.1 million), with a move to surplus by 2027–28 ($179.5 million). Interest rates are expected to grow significantly ($514 million in 2024–25 and $832 million in 2027–28 – $127 million higher than the estimated 2023–24 outcome and increasing by a further $318 million), possibly increasing debt and reducing future budget flexibility.
The ACT Government forecasts revenue to be $8.15 billion in 2024–25, $664 million higher than in 2023–24, rising to $9.67 billion by 2027–28. These figures are slightly lower than previous estimates for 2023–24 and 2024–25, but higher in the later years.
Since 2012–13, the ACT Budget has aimed to rebalance its tax base by gradually eliminating stamp duty (a tax on property sales) and increasing general rates (higher property taxes) over 20 years.
Despite this, the revenue reduction from stamp duties is projected to surpass the increase from general rates through 2027–28.
Payroll tax revenue (a tax on wages paid by employers) is forecast to increase from 29 per cent of ACT Government own-source taxation revenue (the revenue that a government generates through its own taxes) in 2023–24 to 33 per cent by 2027–28, a 4.4 percentage point rise.
In contrast, the percentage from general rates is expected to decline slightly by 0.1 percentage points during the same period.
Opposition leader Elizabeth Lee said: “The Pegasus Report confirms what the Canberra Liberals have been saying: that Andrew Barr’s 13th budget spells more pain for Canberrans doing it incredibly tough. Now the Chief Minister and Treasurer has spent weeks and months leading up to the ACT Budget to say that this Budget would deliver possible relief, and it’s absolutely clear – and the Pegasus report has confirmed – that there will be increases in all ACT government taxes across the board…
“Many Canberra households have seen increases in their rates of sometimes two-and-a-half or three times since the reform started. It’s clear that the government is not on track to meet their target in actually abolishing stamp duty. You see this from people who come up and tell us all the time that whilst they’ve seen their rates increase significantly over the last decade, they’ve also been hit with tens of thousands of dollars in stamp duty. And so they know that they’ve been slugged at least twice by this Labor-Greens government.”
Ms Lee has criticised Mr Barr for increasing rates by an average of 6 per cent per year between 2012–13 and 2022–23, attributing it to his financial mismanagement. The Canberra Liberals have promised to introduce a 2.2 per cent cap on rates increases, based on the 10-year average of the Wage Price Index, which they say would make Canberrans almost $2,000 better off.
“The ACT Government remains the only jurisdiction in Australia committed to phasing out stamp duty,” Mr Barr said. “The two-decade stamp duty phase out has been undertaken with an emphasis on reducing barriers to home ownership. The Government has prioritised stamp duty reductions for owner occupiers, particularly for first home buyers and purchasers of more affordable housing.
“The 2024-25 Budget reduced stamp duty for the 13th consecutive year for owner occupiers, expanded concession exemptions and eliminated stamp duty for eligible off the plan homes.
“The tax reform program is designed to be revenue neutral in aggregate over the full transition from insurance and conveyance duty to general rates.
“Stage 4 of tax reform will commence in 2026-27. The policy settings continue to be refined and will consider the broader economic context as we set the pathway to eliminate stamp duty for owner occupiers.”
Since the COVID-19 pandemic, the ACT economy has become more dependent on the public sector (56 per cent of final demand, compared to 53 per cent pre-COVID). The Canberra Consumer Price Index (CPI) forecast is lower than the national forecast. The main risks stem from national economic factors like interest rates and inflation, as well as international geopolitical tensions. Population forecasts are on the high side compared to Commonwealth Government projections.
A 2020 study found that the tax switch was largely revenue neutral, with an update expected towards the end of stage 3 of tax reform.
The 2024-25 Budget introduced changes to improve housing affordability, a government spokesperson noted:
- The Home Buyer Concession Scheme (HBCS) income threshold increased from $170,000 to $250,000, with a higher allowance per child.
- Temporary increase in property price thresholds for duty exemptions on Off-the-plan and RZ1 units to $1 million.
- Domestic and family violence survivors can access HBCS without considering past property holdings or the alleged perpetrator’s income.
- Pensioner and Disability Duty Concession Schemes will offer full concessions for purchases up to $1 million.
- A new stamp duty exemption for persons with severe disability and their carers starting from 2025.
- Eligibility for HBCS will be based on taxable income, and homebuyers must not have held property in the past five years.
