“With debt at $90,000 for every ACT household and taxes rising at 6.6 per cent, almost double the rate of wages, it is asking far too much to accept the ACT government’s claim that it is supporting the wellbeing of Canberrans.” JON STANHOPE & KHALID AHMED say government spending is crushing households.

The ACT government has resorted to major new revenue measures in the 2024-25 Budget, with increased taxes on utilities and large businesses (including supermarkets, which are certain to be passed to households) and directly on households.

Is this the end of tax hikes? The government has, after all, added more than $400 million a year into the forward estimates, and expenditure has similarly been forecast to grow. 

The operating budget is forecast to return to a “surplus”, albeit, as measured by Mr Barr. It will be interesting to see if, say, the head of Treasury or the Auditor-General agree with him. 

Regrettably, our view of the budget remains the same as last year i.e that the budget papers have an Alice in Wonderland feeling of make-believe about them. 

In our commentary on the 2023-24 Budget last year, we said: “Based on the 10 years of actual results against the budget forecasts, the estimate in the current budget spend of $9.021 billion for 2026-27 is almost certainly understated and, in reality, will be in the order of $9.6 billion” (How this high-tax ACT government can’t stop spending | Canberra CityNews).

Our assessment was based on the fact that Mr Barr had not once in his 12 years as Treasurer been able to contain expenditure growth at the level that was forecast in the budget. 

Our estimate for 2026-27 was based on the average by which each of his forecasts had been underestimated. 

It is now well established that for the last decade the ACT government’s budget forecasts could not be relied upon for the budget year, let alone over the forward years. 

However, we didn’t anticipate Mr Barr would beat his own record in respect of the extent of the underestimate in expenditure. 

Table 1 provides the expenditure forecasts in the 2023-24 and the just handed down 2024-25 Budget, along with the 2022-23 audited outcome.

Unfortunately, it confirms that we were correct in highlighting that actual expenditure will be hundreds of millions of dollars higher than forecast by Mr Barr. 

These unbudgeted costs will be borne by Canberra households, many of whom are already struggling under mortgage stress as well as the highest rates of taxation in the country. 

As we noted in our most recent article on the budget we provided an estimate of the natural growth of the budget, based on the economic parameters applicable, as being about 5 per cent a year. 

That is, in fact, a conservative estimate, noting that in the current year expenses are forecast to grow at 6.6 per cent (Table 1). On this basis, as we predicted last year, expenditure is on track to hit at least $9.6 billion in 2026-27. 

The forecast for 2027-28 is clearly understated and will exceed $10 billion. These are not small costs and will inevitably be borne by Canberra households.

It is quite apparent from the budget papers that resource allocation has been constrained by a significant growth in debt and the associated interest costs, and the need to address problems that should have been dealt with earlier and possibly at a much lower cost.

Market borrowings are forecast to increase from $11.7 billion in 2023-24 to $18.1 billion in 2027-28. That is an increase at an average of $1.6 billion a year, and a compounding growth rate of 11.6 per cent. Interest costs increase by $446 million over this period at an average of 21.1 per cent a year.

To put this in perspective, Table 2 details the expenditure forecasts in the 2024-25 Budget on select government functions and, for the purposes of comparison, the annual interest costs on the debt that the ACT government has racked up.

If the debt and interest costs had been stabilised at the 2023-24 level, that would have provided an extra $446 million in 2027-28, and a staggering $1.1 billion over the forward estimates. 

What could that money have delivered? Lower taxes, more funds for hitherto neglected services, targeted support programs for vulnerable people in our community? How about delivering on some of the promises?

We leave that question for the readers and to the imagination of the ministers overseeing these functions.

To be fair, in 2022 Treasurer Barr advised that he does have a strategy for stabilising debt. 

Unfortunately, it is fundamentally flawed as we pointed out at the time (Debt deepens, government spends more than it earns), being premised on a startling claim that economic growth in the ACT would outstrip the rate at which he is accumulating debt. 

To provide context for that claim, in our opinion, not even Donald Trump would have the nerve to be so brazen.

The Budget Overview advises that “funding in the 2024-25 Budget is targeted towards health services, cost of living challenges and housing. Investment is also targeted at infrastructure to support the wellbeing of Canberrans and strengthen our economy and productive capacity over time”. 

We will discuss the claim of an additional $700 million for health, along with other specific budget initiatives in a future article. However, in real terms, annual growth in health funding in this budget has been set (Table 2) at a mere 2.7 per cent. 

This level of growth is less than the estimate of inflation and wage growth in the budget. In other words, a funding increase of 2.7 per cent represents, in real terms, a cut in funding for health services.

Public housing will receive $50 million in capital in 2024-25 under the quaintly titled initiative “Continuing the Growth and Renewal of Public Housing and Social Housing Accelerator”. This also includes a $5 million contribution from the Commonwealth. 

Apart from some initiatives that had been previously funded (a re-announcement), remarkably, the budget announces $51.2 million over four years for repair and maintenance. This is a normal recurrent cost belatedly funded to address chronic problems with the housing stock condition as reported by the Productivity Commission, which we highlighted recently (Neglected public housing goes backwards).

With debt rising to the equivalent of almost $90,000 for every ACT household and taxes rising at 6.6 per cent annually at almost double the rate of wage growth, it is asking far too much to accept the ACT government’s claim that it is supporting the wellbeing of Canberrans.

Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.