Treasurer Chris Steel. There could be more tough decisions to come. Photo: Ian Bushnell.
Economist Saul Eslake called it a small embarrassment. That may provide some comfort to Treasurer Chris Steel about Friday’s downgrading of the ACT’s credit rating, but the financial implications are real and costly.
The sky is not falling in (yet), but S&P Global’s assessment of the Territory’s budgetary position is a kick in the pants and vindication for those who have been warning for some time that the ACT could not afford to continue posting higher deficits and compiling more debt.
The downgrading will mean higher borrowing costs and an interest bill that inhibits the Territory’s ability to pay for services, no matter how much Mr Steel fudges it.
The Barr Government is fortunate that the downgrading, the second in two years, has occurred early in the term, because, while it will mean political pain for Labor and an even bigger dent in its already tarnished reputation as a good economic manager, there is time to repair the Budget.
Imagine if S&P had cast its judgment just before the 2028 election.
By then, it expects, as does the Treasurer, for the Territory to return to surplus, and maybe all will be forgotten. But that is far from a sure thing.
Mr Steel can’t say the government wasn’t warned – S&P put the ACT and the states on notice in February about their spending.
He had hoped that the mix of spending cuts and revenue measures in this year’s Budget would be enough to hold off a ratings downgrade.
Obviously, they were not enough to convince S&P that the government was putting its house in order quickly enough. Any improvement will only be gradual, S&P said.
Mr Steel believes the “tough decisions” he took in the Budget will provide a path to a more fiscally sound position, and he played a bit of blame shifting by calling on the other Assembly members to accept his medicine for the ACT.
Canberra Hospital main entrance. Health is consuming the Budget. Photo: ACT Government.
The question is, will these measures be enough, and how wild a card is health spending?
S&P identified health and the ACT’s infrastructure spending as the main culprits for the ACT’s deteriorating position.
Health spending is a problem for all jurisdictions as hospitals come under unprecedented pressures, and the ACT is not alone in calling for a new deal from the Commonwealth in the National Health Agreement.
But health is becoming a bottomless pit that is consuming budgets. Funding important infrastructure, such as a new northside hospital, is one thing, but having to top up day-to-day running costs is another.
I fear that there are deeper and more intractable societal issues at play, and there is no guarantee that the government will be able to bring health spending under control.
When asked if even more stringent measures may be necessary or if the infrastructure pipeline needs to be rethought, Mr Steel is cagey.
The Budget should do the job and the services Canberrans demand won’t be touched, he says. But he isn’t ruling out more tough decisions: “S&P has acknowledged that we are undertaking that work around savings and efficiency measures, and that is something that we will continue in future budgets.”
The ACT infrastructure list includes once-in-a-generation projects that a growing Canberra needs, he says. But he also says: “We will need to continue to look at the investment we’re making in the infrastructure pipeline to make sure that it is deliverable, achievable and sustainable.”
So there is a lot of wiggle room.
Come the Mid-Year Budget Review and next year’s Budget, don’t be surprised if Mr Steel tightens the screws further by cutting spending in some areas and pushing more project timelines out.
Nor should higher taxes and charges or new levies be ruled out, although the Canberra Business Chamber rightly points out that this would be a drag on the economy.
It should be more than apparent now how low building a new stadium is on the priority list.
But Mr Steel is right about the infrastructure pipeline, for which local industry has long advocated. Canberra is at a stage in its history when much of its infrastructure needs upgrading or replacing.
The booming northside population needs a new hospital. The city needs a modern transport system. A new theatre, national convention centre, and entertainment centre are crucial for the national capital’s business and cultural life, and they will also generate additional economic benefits. More than the stadium, no matter how much we would like to have it.
The Commonwealth is contributing on a 50:50 basis to some of these projects, but given the narrowness of the ACT’s revenue base and its significance as assets of the national capital, why shouldn’t it do more?
The notion of the ACT operating as a city-state, incorporating all levels of government, has never been sustainable, at least not under the current arrangements.
The situation should be used as an opportunity for the ACT to redefine itself and its relationship with the Commonwealth, which needs to resolve its own budgetary and legacy tax issues.
It is also an opportunity for the Barr Government to review what it spends our money on, with a greater focus on core services.
This need not be a counterproductive austerity drive, but about recognising priorities, and it is probably something that is already starting to happen.
Mr Steel, in deflecting attention onto the Assembly on Friday, made a good point in referring to how MLAs continue to propose new spending, despite the obvious pickle the place is in.
The downgrading is a blow to the government, which cannot seem to take a trick, as my colleague David Murtagh pointed out so forensically on the same day it was announced.
This may be a Labor town, but the public’s patience must surely be wearing thin.
