Horrors come home to roost

THE ACT Government’s Mid-Year Budget Review has revealed major cracks in the Territory’s economy, with possibly worse on the horizon.

And the Government’s track record tells us that the promise to return the Budget to surplus cannot be relied on.

The most ominous message in the MYR is that the Government’s negative fiscal balance (its borrowing requirement) for 2011-12 has deteriorated to $530 million and blows out to almost $2 billion over the four years to 2014.

This is in addition to the negative headline deficit of $181.3 million – a blow-out of $144 million.

So, in addition to taxing the people of Canberra, the ACT Government is also compulsorily borrowing to fund its day-to-day operations and capital spending.

In the 2010-11 Budget, the fiscal balance was estimated to be $634 million, reducing to $380 million in 2011-12. But now the fiscal balance for 2011-12 is expected to blow out by $150 to $530 million – a huge error and a massive drain on the rest of the community.

The ACT Government’s Budget continues to rely too heavily on a narrow tax base, with more than 50 per cent of its revenue coming from taxes on property – and that structural flaw is getting worse.

One significant item in the MYR which is clearly wrong is the estimated revenue from the Lease Variation Charge. The MYR assumes no change from the $22.4 million assumed in the original Budget, but with evidence being that there has been a large reduction in investment in developing properties.

By the end of 2011-12 the Government will see a collapse in revenue from this onerous charge.

Its failure to raise revenue will be a negative for the Budget but will be an important lesson for the Government because the LVC is bad for the citizens of Canberra. It is a massive tax which is making most people worse off by reducing the incentive to redevelop (putting land to better use) and driving up the cost of housing.

Treasurer Andrew Barr has said he intends to make “the ACT’s tax settings more progressive, further improving economic efficiency and fairness”.

Is this code for imposing even more taxes on property?

Catherine Carter is ACT executive director of the Property Council of Australia

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