A senior economist has questioned the persistent budget deficits in the ACT and says the territory should prepare itself for a downturn in the global economy, given the risks of its reliance on government spending.
"If we're running close to the line, if there is an underlying structural deficit there, obviously if the economy turns down sharply, that's likely to drive the budget into significant deficit," Dr Stephen Anthony said.
![Industry Super Australia chief economist Stephen Anthony: ACT should capitalise on its expertise in public ...](/web/20170105015836im_/http://www.canberratimes.com.au/content/dam/images/g/s/q/m/h/0/image.related.articleLeadwide.620x349.gsqau1.png/1479297335174.jpg)
"And if the government isn't exercising the requisite control over spending and doing everything in its power to maintain competitive growth drivers in the economy, then it is much easier to get in a very tough situation quickly."
Dr Anthony, who is chief economist with Industry Super Australia in Melbourne, was formerly director of budget and forecasting with Canberra consultancy Macroeconomics, where he worked helped ACT Treasury model the economy.
![Khalid Ahmed: Something has to give in the ACT budget.](/web/20170105015836im_/http://www.canberratimes.com.au/content/dam/images/g/h/8/f/i/h/image.related.articleLeadNarrow.300x0.gsqau1.png/1479297335174.jpg)
He was speaking before his appearance at a public seminar on the economy and budget on November 24, along with Dr Khalid Ahmed, a former senior official in the ACT Treasury.
Dr Ahmed said the ACT was one of only two state-level governments in deficit – the other was Western Australia.
"The trends in our budget are not sustainable, and they call for some serious thinking and some hard choices," he said. "Just hoping that economic growth will get you out of it is no plan."
On current forecasts, the government would be able to cut spending across the rest of the budget just to meet the annual increases in health and education spending, plus the annual payments (averaging $64 million a year) for the Gungahlin tramline when it begins operation.
The alternative was to raise taxes, but the ACT's tax reform, which Dr Ahmed supports, is cutting transaction taxes and shifting the burden to rates and land tax. The government could not increase rates on top of tax reform without risking "huge impacts on people that you don't want to hurt".
Running ongoing deficits was not sustainable.
"You can only do it for a while before you get into a spiral and it becomes then a question of making a large-scale adjustment," Dr Ahmed said.
Dr Anthony pointed to a "persistence of deficits" in the ACT which might indicate an underlying structural deficit.
"Why aren't we pulling in revenue if activity's stronger than other regions and why are we spending what we're spending if private demand is actually quite robust?"
The ACT should tread carefully through what could be a difficult global economic environment, given the risks of its big reliance on the public sector, he said.
Dr Anthony's recipe for weathering any downturn is for the ACT to build industries around its highly educated population, its two universities and its expertise in medical services, technology and science.
It could also build an industry and an export and conference market around its expertise in public sector administration.
Dr Anthony suggested annual roundtables for potential investors in public infrastructure in Canberra, where the government could lay out the projects likely to have the biggest returns for investors and "directly deal with future equity partners there and then".
Asked about Canberra's biggest infrastructure project, the light-rail line, Dr Anthony said, "Provided the infrastructure projects we're talking about are well vetted, they have big benefit to cost ratios, they're likely to be a big win-win both for private sector investors but also for the broader ACT economy and for taxpayers, I think they need to go ahead."
The health of the ACT's budget has been questioned by others, with Pegasus Economics pointing out in July that ACT treasurers had been forecasting a return to surplus for at least six years, but it had never materialised.
In its pre-election update, Treasury pegged this year's deficit at $205 million, with a $16 million surplus predicted for 2018-19. But it listed government projects and commitments that are yet to be budgeted.