Further increases to interest rates pose the biggest risk to the ACT's economy but Chief Minister Andrew Barr thinks the territory would be resilient in the face of any national recession.
Mr Barr, who is also the Treasurer, released a mid-year budget update on Thursday.
One of the biggest assumptions underpinning the mid-year budget update is the impact of higher interest rates, especially as many borrowers on low fixed rates loans will have these expire this year.
Mr Barr said about 10,000 Canberrans were expected to have their fixed rate loans expire. He said the impact of interest rates was the biggest risk facing the territory's economy.
"Where the reserve bank goes on interest rates, that has such a big impact. The ACT has a slightly higher than national average mortgage bill so as a proportion of all households we have slightly more households that have a mortgage," he said.
"That reflects our income profile and home ownership profiles that are higher than the rest of the nation.
"I think that's probably the biggest economic risk at this point, absent any further twists in the pandemic or international shocks as it might impact on fossil fuels."
The Reserve Bank of Australia increased the cash rate by 0.25 basis points this week to 3.35 per cent. This was the ninth consecutive rate rise and the bank's governor Phil Lowe indicated more rate hikes were likely.
Mr Barr said if the Reserve Bank went much further on rate hikes they risked "crashing the economy in order to save it from inflation".
But he said if there was any indication the nation would enter a recession that the territory could be protected.
"I think the ACT has proven to be more resilient and somewhat counter cyclical and if the economy does look like it is teetering on the edge of a recession then a number of automatic stabilisers kick in, federal government spending, for example, and that tends to flow through our economy first and more substantially than other states and territories," he said.
Mr Barr did say the territory government may need to increase the amount of funding to measures to help low-income households with cost of living pressures. He said he was in discussions with the Commonwealth about how they could help with funding this.
"I'm not sure we need to increase the number of measures, but we might need to increase the amount we've put into a number of the measures," he said.
"We recognise that there will be increased demand this year, it's going to be a tough year economically.
"What we'll endeavour to do is keep the economy growing, keep employment growing.
"There's no doubt that if you're in a job, your income is higher than if you're not in a job."
Over the past fortnight the government has announced a range of measures from the mid-year update including an extra $8.1 million for the Canberra Hospital expansion, $50 million extra towards an interest-free loan scheme for environmentally friendly home upgrades and new roofs for Dickson College and Melba Copland Secondary School.
The update showed the ACT government's deficit has improved by more than $21 million since the August 2022 budget, with the headline net operating balance expected to be $461 million at the end of this financial year.
The territory's debt is still expected to increase to more than $9 billion over the next four years, despite being $232 million lower than the 2022-23 budget estimate.
Revenue is also higher than forecast with the government expected to raise more than $7 billion this year due to payroll taxes, stamp duty and GST revenue.
Payroll tax is the biggest source of ACT tax revenue and is expected to bring in more than $755 million this financial year - this is $50 million more than expected. It is the first time payroll tax has overtaken rates revenue.
GST revenue is expected to bring in $1.7 billion, which is $89.5 million higher than forecast.
"There was a lot of money that had been saved by households during the pandemic and during lockdowns.
"They then went out and spent it on goods and services that were taxable under the GST that's led to increased revenue," Mr Barr said.
"Our strong labour market, near full employment has also seen payroll tax go ahead of rates as the territory's single largest own source revenue stream."
We've made it a whole lot easier for you to have your say. Our new comment platform requires only one log-in to access articles and to join the discussion on The Canberra Times website. Find out how to register so you can enjoy civil, friendly and engaging discussions. See our moderation policy here.
