“Should Canberrans celebrate the highest growth in the economy or worry more about the highest rates of taxation and an increase in debt of almost $4000 for every man, woman and child,” ask JON STANHOPE & KHALID AHMED, as they ponder the latest “elitist” utterances of the chief minister.
Chief Minister Andrew Barr recently claimed that “Canberra is continuing to evolve into a diverse, dynamic city with a strong public and private sector, a growing innovation ecosystem and city-shaping infrastructure”.
He also reportedly claimed that “forecasts for future growth are robust with continued strength expected in public demand and services – and a resilient and growing building sector, alongside a gradual pick-up in private investment”.
Barr’s commentary on the economy appeared soon after the release of the report by the expert appointed by the Assembly select committee inquiring into the state of the ACT’s finances, Saul Eslake, that cumulative deficits totalling more than $7 billion and the mountain of debt that has been accumulated are entirely due to the ACT Government’s policy decisions.
If Barr’s intention was designed to direct attention away from these damning findings, it instead brought it into focus – not perhaps for the mainstream media, but for astute readers and observers – as we shall explain.
However, first we can confirm that the economy, as measured by Gross State Product (GSP) grew by 3.5 per cent in 2024-25, over and above the previous year. In fact, this was the largest growth of all states and territories.
Notably, about two thirds of the gross value added came from a single industry, namely, Public Administration and Safety.
Both the Commonwealth and the ACT governments contribute to this industry, and their consumption increased by 7.8 per cent and 2.9 per cent respectively, in real terms.
As Canberrans, we welcome the federal government’s spending in the ACT with the proviso that its spending, both in Canberra as well as nationally, is focused at value creation and delivering the highest social and economic benefits.
As for the ACT, readers would recall that in this same year, ie, 2024-25:
- the government blew its expenditure budget by $369 million (4.1 per cent) and posted a deficit of $1.4 billion.
- increased taxation revenue by 5.4 per cent; and
- increased net debt by a staggering $1.858 billion.
That part of the economic growth attributable to the ACT Government, therefore, was fuelled by higher taxation and debt.
It is obvious, of course, that higher taxation reduces a household’s capacity for spending and investment.
Unchecked capital spending, given the limits on labour and material supply, also crowds out business investment.
While not arguing against taxation nor public spending as a principle, their need must be balanced against the impact on households and businesses and kept to efficient and effective levels.
Household consumption, typically, the engine room of any economy, grew by just 1 per cent. A significant part of this growth was related to rents and dwelling costs, which increased by 1.2 per cent in real terms.
Should Canberrans celebrate the highest economic growth in the economy or worry more about the highest rates of taxation and an increase in debt of almost $4000 for every man, woman and child?
We nevertheless have no doubt that the growth in the economy attributable to rent and housing costs will not have been appreciated by renters and those on moderate and low incomes.
We could not find any evidence to support Barr’s claims about “a resilient and growing building sector” and a “pick up in private investment”.
Quite the contrary, according to the ABS, dwelling investment in the ACT decreased by 4.1 per cent in real terms and private capital investment in the economy (comprising dwelling investment, non-dwelling construction and business investment) also decreased by 1.4 per cent in real terms.
It is possible that Barr’s comments relate to his forecasts and hopes for the future for these sectors, rather than what actually happened in 2024-25. However, it’s difficult for us to maintain such optimism in view of the government’s policy settings.
A critical input to dwelling construction is obviously the availability of land. The 2024-25 activity levels would therefore depend on land released in previous years.
For over a decade, the government’s delivery arm, the Suburban Land Agency (SLA) has set low annual release targets, which it has nevertheless regularly failed to meet.
In 2022-23, the SLA released only 2473 residential dwelling sites against a budget target of 3918, an underperformance of 37 per cent. In 2023-24, it set a release target of 1883 dwelling sites, a third of the target in 2011, and failed to achieve even this meagre target.
In a detailed analysis of the 2024-25 release program, we earlier identified a shortfall of 24 per cent in the release of residential dwelling sites, a 100 per cent shortfall (ie, zero achievement) each in mixed use, commercial use, affordable housing and public housing land release targets.
The effects of this pathetic performance are likely to impact the activity in dwelling and commercial construction sectors in the coming years.
One reported comment from Barr left us seriously perplexed as he advised local media that we are “not making millions and millions of $5 things in the ACT, but we are making hundreds of million-dollar things”.
We could not find any evidence of $100-million “things” in the export figures in the ABS data. The total value of exported goods in international trade was just $25 million.
Figuratively, if it was intended as such, the view is elitist and disturbing coming from a Labor chief minister. We should of course celebrate those making $100 million “things” – the high value, hi-tech outputs – but there are also tens of thousands of people who make “$5 things”.
Those are, for example, labourers, retail workers, cleaners and administrative staff. Wages in these sectors are relatively lower, the work is often part-time, typically providing employment for young people.
In the retail industry alone, total employee incomes are in the order of $1 billion. There was zero growth in this sector in 2024-25.
In the same week, data released by the Commonwealth Grants Commission highlighted that the ACT’s payroll tax is 121 per cent, and land tax is 165 per cent of the national average.
The economic incidence of payroll tax, depending on the state of the economy, is on employment/wages or costs for households. The incidence of land tax in a supply constrained market is undoubtedly on rents. It’s the workers in these industries who are most likely to be impacted by the government’s taxation policies.
Canberra is the seat of the national government, and we should be thankful not just for the stability and resilience the Commonwealth’s presence brings to our economy, but also for the extent to which it has protected the economy from the impacts of the ACT Government’s regressive policies on taxation, land supply and essential services.
Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.
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