ACT records worst-ever budget deficit as COVID-19 pandemic flattens government finances

ACT Government finances are in their worst-ever state as the global COVID-19 pandemic and a collapsing national economy drive Canberra into recession.

The Government’s fiscal update, released today, details the effects of an “extremely challenging 2020”, which began with devastating bushfires, “relentless smoke haze and the worst hailstorm to hit an urban Australia area this century”.

“This is a once-in-100-year public health and economic shock,” ACT Chief Minister Andrew Barr said

“All governments in Australia and around the world are using their budgets to support their economies and communities, and that’s exactly what the ACT is doing.”

The ACT economy lost almost $800 million of activity in just three months — between March and June — as tight restrictions were imposed on businesses to control the spread of coronavirus.

The Treasury estimated this “may be the largest quarterly contraction on record”, with workers in hospitality, the arts and tourism hit hardest.

Public debt to soar for foreseeable future

ACT Government debt will rise to unprecedented levels as the territory deals with a dramatic collapse in revenue while spending more than ever to prop up the economy.

The precise state of ACT public finances are unclear, because the Federal Government postponed this year’s budget.

But this year’s deficit is estimated to exceed $900 million — significantly more than six years earlier, when the Mr Fluffy asbestos crisis coupled with federal government cuts undermined the ACT budget.

The economic update documents show the ACT Government is bracing for sharp falls in GST and local tax revenue, as well as income from land sales.

Canberra’s population growth has also halved with the closure of Australia’s national borders and the lack of new overseas migrants and students arriving.

The Treasury noted the drain on public finances, describing it as “the cost of supporting the ACT to survive COVID-19”.

The Government said it would eventually address public debt as the economy recovered, but in the meantime would “take advantage of historically low interest rates to continue to invest” in infrastructure and public services.

ACT economy ‘strong’ but recovery will be slow

The impossibility of predicting coronavirus outbreaks means uncertainty clouds the ACT economy and budget — Treasury officials say “this is an extremely difficult time to undertake economic forecasting”.

However, the fiscal update said the ACT was in “one of the strongest positions around the world” thanks to a lack of known cases of COVID-19, its strong pre-pandemic economy and a much smaller financial downturn than other states and territories.

About two-thirds of the jobs lost in Canberra’s accommodation, food services, arts and recreation industries during the coronavirus shutdown had been regained by last month.

If international borders reopen from July 2021, and if Canberra avoids a second coronavirus outbreak, the Government expects the ACT economy to shrink, in real terms, by 1.5 per cent this financial year before springing back to strong growth in 2012-22.

Nonetheless, the update warned that many factors could affect the ACT’s recovery.

It also said the Federal Government’s proposal to move more public servants’ jobs out of Canberra could further undermine the ACT economy, as could any decision to cut federal government agencies’ operational budgets.