Page 774 - Week 02 - Thursday, 12 February 2009
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current year and budget estimates for each of the three forward years at the time. However, it is important to note that this was “a point in time” picture of the territory’s finances.
The timing of the review was necessary to appropriately inform the ACT community of the state of the territory’s finances as a lead-in to the 2009-10 budget process. The review’s publication also coincided with the release of midyear updates by all other Australian jurisdictions.
As we now appreciate, the midyear review was published in rapidly evolving economic circumstances. The review has been delivered at a time of deteriorating national and international financial markets, a deep and worsening global economic slowdown and the prospects of recession in a number of leading economies. The impacts of the global financial crisis are rapid and uncertain. There is no perfect time to deliver the midyear review. The external impacts on the territory’s finances are ongoing and evolving, and will continue to be so.
Since the release of the review, growth in global economies has stalled and, as advised in the recently released updated fiscal and economic outlook, the commonwealth has confirmed that consumer confidence has significantly deteriorated, with growth prospects continuing to slow and employment weakening. Despite these revisions, national economic growth is not currently expected to turn negative, which is encouraging, considering many countries worldwide are either currently experiencing recession or are expected to fall into recession in the near future.
The IMF has also significantly revised down its forecast for world growth in 2009 from more than two per cent to just one half of a percent—the lowest rate in the post World War II period. The key emerging economies of China and India, which are vitally important for Australia’s growth prospects, are now slowing sharply. The IMF says that, while the world economy is facing a deep recession, a sustained economic recovery will not be feasible until the function of the financial sector is restored and credit markets are unclogged.
The commonwealth has now announced that its budget will fall into deficit. But the Rudd government is acting swiftly and decisively to support jobs and the economy now and into the future through the $42 billion nation building and jobs plan. This package should have a positive impact on the ACT economy. On top of the four per cent interest rate cuts announced in September 2008, the package of direct support for Australians, including the tax bonus for working Australians, the single-income family bonus, the back-to-school bonus and the training and learning bonus should provide a boost to consumption and thus will have flow-on effects for employment and economic activity.
The commonwealth have also announced a further reduction in the national GST pool. This is likely to result in around a further $50 million per year not flowing to the territory as part of our GST revenue. While the Reserve Bank’s further cut to official cash interest rates will provide important relief for those with mortgages, it will mean a lower rate of earnings on the territory’s cash balances.
At the time of publishing the midyear review we were forecasting a modest surplus of $15 million in 2008-09 and deficits in the outyears. As I outlined, with the latest
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