Page 551 - Week 02 - Thursday, 24 March 2022
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updated our approach to forecasting to include both upside and downside scenarios to outline the potential impacts of different assumptions around pandemic-induced economic impacts.
The key drivers of both the upside and downside scenarios in this budget review outline the exogenous factors that would most greatly impact the economic outlook for the territory and what those impacts could be. These include new variants of COVID-19 or a decline in vaccine effectiveness; the rate of return of skilled migrants, international students and tourists to our territory; the length of the material effects on economic activity as a result of the Russian invasion of Ukraine; and changes in the cash rate by the Reserve Bank of Australia responding to emerging inflationary pressures.
These risks are on the horizon. They are the reason to be cautious. But with proper planning, monitoring and maintaining of flexibility in our fiscal policy response, we are ready to respond to these future scenarios.
The territory’s strong balance sheet has allowed the government to respond strongly over the last two years to the public health, economic and financial impacts that COVID has had on individuals, the community and businesses. The territory’s AAA credit rating, once again reaffirmed by S&P Global Ratings after the 2021-22 budget, continues to outperform all other state and territory governments in Australia and all subnational governments in the Asia-Pacific region.
The ACT government’s emphasis on significant fiscal stimulus, job creation, economic recovery and support for the most impacted in our community is reflected in the headline net operating balance over the short term. With this update the headline net operating balance deficit is estimated to improve in the current fiscal year, to $770 million. That is an improvement of $181 million compared to the estimate at budget time. This improvement reflects increases in the national GST pool, GST being our single largest source of revenue, and an improvement in our own-source taxation revenue, which is reflective of the stronger economic position in the territory.
This revenue increase is partially offset by new policy decisions that we have taken to continue our effective pandemic response and to invest in the wellbeing of Canberrans for the future. The underlying position improves each year across the forward estimates, with deficits reducing to about $370 million by fiscal year 2024-25.
Overall, the budget review sees a $475 million improvement in the territory’s fiscal position over four years to 2024-25 compared to the estimates at budget time. The path back to budget balance will continue to be a priority for the government over the medium term. However, the need to balance the competing priorities of the immediate health response and to build on the foundations of the territory’s economic recovery and growth outweighs an immediate need to balance the budget in the next fiscal year, or in the couple of years after.
The budget review reaffirms the government’s commitment to prioritise support for the economy to recover from the effects of the pandemic, while recognising the need for prudent fiscal management over the medium term to support intergenerational equity and ensure the wellbeing of Canberrans in the long term.
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