ACT’s “business-lite” budget ignores potential for economic winter
The first of Australia’s “re-opening budgets”, delivered by the ACT Government today, provides insufficient support for business, according to Australia’s leading professional accounting body.
The 2021-22 ACT budget comes a little over a week after Australian Bureau of Statistics (ABS) data revealed the full extent of the devastation wrought on local businesses by the lockdown.
“Although the re-opening is likely to deliver an initial bounce, local businesses may face a lean summer quarter if Canberrans make their traditional exodus from the capital,” said CPA Australia General Manager External Affairs, Dr Jane Rennie.
“This could be followed by an economic winter if the Federal Government begins the process of fiscal consolidation in 2022. Although the private sector is the Territory’s biggest employer, a significant proportion of its activities support the public sector.”
Even before the pandemic, there was a question mark over the financial health of many ACT businesses. “Many businesses hadn’t fully recovered from the Black Summer bushfires when COVID-19 hit, giving them fewer reserves to draw on during the recent lockdown.”
ABS figures show that retail trade in the ACT fell 19.9 per cent from July to August; an extraordinary decline when you consider that NSW and Victoria recorded declines of 3.5 and 3.0 per cent respectively in the same period. ACT payroll numbers for the fortnight to 28 August were also down heavily, falling 7.1 per cent, compared to 2.6 per cent in NSW and 3.2 per cent in Victoria.
“Delivered on the eve of the ACT’s re-opening, this budget was an opportunity to support business recovery and set out a longer-term plan to diversify the economy. Tellingly, the budget speech only mentions business twice, in the context of existing supports, and doesn’t specifically mention small business.
“There’s a sense that an economic winter is coming but the ACT Government isn’t prepared to pack away its sunscreen and get out the winter woollies. We saw this with the failure to prepare a business support scheme in anticipation of a lockdown, and now the government has delivered a ‘business-lite’ budget, especially when it comes to small business recovery.
“The government is relying on household consumption to spur economic growth. Yet, the balance of government spending is tipped in favour of public investment. One of the issues with public spending, is that it typically takes longer to have an economic impact. Business support initiatives would have been a faster and more direct way to turbo change the local economy.”
Most of the 2021-22 budget measures follow through on election commitments, with notable investments in health, education, and infrastructure. While there are investments in some hard-hit sectors, they will have limited impact – $10 million in new support for the tourism and events sector; $13 million to support the arts and culture; and $8 million to support business innovation and investment.
The budget discloses net debt of $5.7 billion in 2021-22, increasing to $9.6 billion by 2024-25. The deficit is estimated to be $951.5 million in 2021-22, which is $477 million higher than previously forecast and reflects the costs associated with lockdown support. The budget will remain in deficit over each of the next four years.
The Territory’s economy is forecast to grow 2.5 per cent in 2021-22, increasing to 3.25 per cent in 2022-23. Revenue is expected to be $425 million higher in 2021-22, largely due to the strength of the property market. Government expenses are expected to be $926 million higher than forecast.
The budget reflects changes to some rates and duties as part of the government’s tax reform program. Effective from 1 July 2021, these include making the general rates system more progressive and reducing stamp duty for eligible purchasers.
The budget makes a concerted effort to tackle long-term issues in health and education. There is funding of $2.1 billion for health in 2021-22. “This will make a positive contribution to expanding the ACT health system’s capacity and increasing nurse to patient ratios.”
The budget commits $1.6 billion to education, which will be beneficial for young Canberrans. However, there is no focus on the ACT’s professional skills shortage, which has been exacerbated by border closures and the loss of international students.
“The war for professional talent is heating up. There is a severe shortage of accounting and business professionals in the ACT, especially in the mid to senior ranks. Without initiatives to encourage professionals to relocate to Canberra or to foster home-grown talent, this shortage will become more acute.”
$6.4 billion will be invested in infrastructure projects over the next five years. “The ACT’s infrastructure program will support public and private sector employment. However, we would’ve liked to have seen grants provided to help businesses scale-up, increase their digital capacity or access business advice. These sorts of initiatives would aid with short-term recovery and position local businesses for longer-term growth and development.”
$234 million will go towards environmental protection and to help reach the government’s goal of net-zero emissions by 2045. “It’s pleasing to see the ACT taking a strong leadership position by embedding sustainability into its economy through a range of environmental initiatives.”
