2018-19 Budget Economic Performance, Outlook and Strategy · 2018-19 Budget Paper No. 3 5 Economic performance, outlook and strategy CHAPTER 1 . ECONOMIC PERFORMANCE, OUTLOOK AND

2018-19 Budget Paper No. 3 5 Economic performance, outlook and strategy

CHAPTER 1

ECONOMIC PERFORMANCE, OUTLOOK AND STRATEGY

Chapter Page

1.1 Overview 7

1.2 ACT economic outlook 9

1.3 Australian economic outlook 23

1.4 International economic outlook 25

1.5 Economic strategy 27

1.6 Risks to the economic outlook 33

2018-19 Budget Paper No. 3 6 Economic performance, outlook and strategy

2018-19 Budget Paper No. 3 7 Overview

1.1 OVERVIEW

The ACT economy is undergoing a sustained period of expansion. In 2016-17 we saw the fastest rate of growth in the country. This strong growth is expected to continue in 2017-18, with further growth of 4.5 per cent.

The ACT economy is also becoming more diverse with services exports, construction and household consumption making strong contributions to growth now and in the years ahead.

Growth in both construction and household consumption is being driven by strong population growth. Our city welcomed over 7,000 new Canberrans last year. This population growth is among the highest of any jurisdiction in Australia.

Household consumption is also expected to pick up as wages growth returns to trend rates over the forward estimates. In the short term, however, flat wages growth is expected to constrain household consumption.

Services exports are continuing to grow strongly, with the tertiary sector being the strongest performer.

At the same time, the national Government’s share of total demand in the ACT economy has fallen from 44.7 per cent of the economy in December 2011, to 41.3 per cent as of December 2017 – pointing to the ACT’s ongoing diversification. Despite this, national government consumption spending – including on consulting services – is still expected to place a floor under growth going forward.

ACT Government spending is also expected to support growth, including as a result of new infrastructure projects such as the completion of Stage 1 of Light Rail and investments in new schools and hospitals.

This strong economic environment is supporting high rates of full-time job creation. Over the course of 2017, 10,000 jobs were created in Canberra, 90 per cent of which were full-time. Employment is forecast to grow by an additional 2 per cent in 2018-19, before returning to trend growth of 1½ per cent over the remainder of the forward estimates.

Mirroring the growing diversity of the economy, those jobs have been in a broad range of industries including retail, healthcare, telecommunications, utilities and administrative services.

Overall, the ACT economy is being supported by the fundamentals of low interest rates, strong population growth and a lower Australian dollar.

Downside risks centre on Australia’s high levels of household debt, presently the second highest in the world. The Commonwealth Government’s decentralisation agenda, which saw the relocation of a small number of public servants in the 2018-19 Commonwealth Budget away from Canberra, also represents a risk, should it accelerate.

2018-19 Budget Paper No. 3 8 Overview

An upside risk to the ACT economy is the prospect of the establishment by the University of NSW of a new tertiary campus in Canberra. A strengthening international economy also represents an upside risk, both in terms of international students and tourists.

2018-19 Budget Paper No. 3 9 ACT economic outlook

1.2 ACT ECONOMIC OUTLOOK

The ACT economy is performing strongly and has consistently seen some of the fastest rates of growth in the country over recent years. Following growth of 4.6 per cent in 2016-17, we expect to see further growth of 4.5 per cent in 2017-18, followed by solid growth of 3½ per cent in 2018-19 and over the forward estimates.

A key driver of recent economic growth was the Professional, Scientific and Technical Services sector, which expanded by over a third in 2016-17 and is forecast to continue to underpin growth going forward. Household consumption is also expected to contribute strongly to growth over the forward estimates as a result of solid population growth and associated household formation, despite forecast constrained real wages growth.

Services exports grew by 6.5 per cent in 2016-17, bringing their contribution to the economy to almost $2 billion. Of this, the tertiary education sector was the strongest performer, growing by 24.4 per cent and contributing over $750 million. Strong growth in services exports, in particular for international students, is forecast to continue over the forward estimates, though at a moderating pace.

The construction of private dwellings grew by a high 25 per cent in 2016-17 and will continue to be underpinned by robust population growth, although this very strong rate of growth is likely to moderate.

ACT Government spending is also expected to support growth, including as a result of new infrastructure projects such as the completion of Stage 1 of Light Rail and future investments in new schools and hospitals.

National government consumption spending, including on consulting services, is also expected to place a floor under growth going forward.

Forecasts of key economic aggregates are summarised in Table 1.2.1.

The projections for both Gross State Product and State Final Demand have also been affected by major revisions to these series by the Australian Bureau of Statistics in late 2017. These revisions have improved the accuracy of both series and better reflect compositional changes within the economy1. An effect of these revisions, which were back cast across the entire historical time series, was to place upward pressure on the average historical rate of growth in Gross State Product and downward pressure on that of State Final Demand.

1 The 2017-18 Budget Review foreshadowed these revisions and provided an overview of the methodological changes. Further information is available at www.abs.gov.au (Cat. No. 5204.0.55.012 - Information Paper: Changes to the 2016-17 release of the Australian System of National Accounts, 2016-17).

http://www.abs.gov.au/


Table 1.2.1: 2018-19 Budget economic forecasts, percentage change

Actual Estimate Forecasts Projections 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

ACT Gross State Product1 4.6 4½ (+½) 3½ (+¼) 3½ (+1) 3½ (+1) 3½ State Final Demand1,2 3.5 (+0.1) 4 (+¾) 3 (+¼) 3¼ (-¾) 3¾ (-¼) 3¾ Employment3 1.7 3 (-1½) 2 1½ 1½ 1½ Wage Price Index3,4 1.9 2 2½ (+¼) 2¾ (-¼) 3¼ (+¼) 3¼ Consumer Price Index3 2.1 2¼ 2¼ 2½ 2½ 2½ Population3 1.7 1¾ 1¾ (+¼) 1¾ (+¼) 1½ 1½ Australia

Gross Domestic Product1,2,5 2.1 2¾ 3 3 3 3

Sources: ABS Cat. No. 5220.0, 5206.0, 6202.0, 6345.0, 6401.0 and 3101.0; Chief Minister, Treasury and Economic Development Directorate; Commonwealth 2017-18 MYEFO; 2018-19 Commonwealth Budget.

Notes: Forecasts and projections are rounded to a ¼ of a percentage point, reflecting an appropriate level of accuracy in forecasting economic parameters. Projections are based on long-run trend assumptions. Numbers in brackets for ACT parameters represent the change from the 2017-18 Budget Review. 1. Real values. 2. Year average basis. 3. Through the year basis. 4. Total hourly rates of pay excluding bonuses. 5. These are the 2018-19 Commonwealth Budget forecasts. Comparisons are to the Commonwealth’s 2017-18 Mid-Year

Economic and Fiscal Outlook.

Gross State Product

The outlook for growth in Gross State Product (GSP) is for sustained strong outcomes in both 2018-19 and across the forward estimates. Growth in GSP in 2017-18 is anticipated to have performed more strongly than previously expected, and is now estimated to be 4½ per cent, on the back of strong household consumption and National Government consumption and investment spending.

Growth is expected to moderate to 3½ per cent in 2018-19, in line with historical trends. This solid rate of growth is expected to continue over the forward estimates.

National Government consumption, in particular in relation to spending on contractors and consultancies, is expected to be an important driver of growth in 2018-19 and across the forward estimates. This spending includes Government programs and investment in relation to defence, cyber security, IT and the National Disability Insurance Scheme.

Household consumption is forecast to support the strong growth outlook as a result of robust population growth and associated spending in relation to household formation. A solid outlook for employment growth is also expected to support consumer confidence over the short to medium term. In addition, an expected increase in real wages growth toward the end of the forward estimates may provide further support for consumer spending.

The ACT Government is expected to contribute to growth over the forecast and projection period as a result of rising consumption and investment spending. In particular, infrastructure spending on Stage 2 of Light Rail, the new SPIRE Centre at the Canberra Hospital and new transport infrastructure supporting the Molonglo region will provide a strong investment pipeline.


The pace of housing construction is expected to soften from its recent very high levels, though it is still expected to continue to grow as a result of strong population growth, robust jobs growth and low interest rates.

Services exports are playing an increasingly important role in the ACT economy, with its share of Gross State Product reaching 5.1 per cent in 2016-17, the highest level recorded. Growth in education exports are the primary driver of this increased share. Education exports grew by 24.4 per cent and contributed $786 million to the ACT economy in 2016-17. This sector is expected to continue to grow at a strong pace across the forward estimates. The Government is currently in discussions with the University of New South Wales concerning the possible establishment of a new campus in the centre of Canberra. Should this development proceed, the contribution from the University sector to the local economy will expand even further in future.

Although services imports have also grown strongly, the overall services trade deficit has fallen over recent years. This fall has helped to drive Gross State Product growth above that of State Final Demand since 2012-13, a reversal of the previous historical outcomes, where State Final Demand growth largely tracked above that of Gross State Product (Figure 1.2.1). This demonstrates the growing importance of services exports to the ACT economy.

Figure 1.2.1: Real State Final Demand and Gross State Product growth

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ent (

tty)

Source: ABS Cat. No. 5206.0 and 5220.0


State Final Demand

State Final Demand is estimated to grow by 4 per cent in 2017-18, before moderating to 3 per cent in 2018-19. The growth rate is then expected to rise steadily, reaching 3¾ per cent by 2020-21. These downward revisions in the out years, compared to the 2017-18 Budget Review, have come about as a result of methodological changes made by the ABS in late 2017.

The composition of total demand in the ACT economy has changed over the past five years, with the private sector’s share of State Final Demand increasing and that of the National Government falling. The ACT Government’s share has been steady over this period (Figure 1.2.2).

Figure 1.2.2: Public and private share of ACT State Final Demand

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Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

ACT Govt. expenditure National Govt. expenditure Private expenditure

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hare

Source: ABS Cat. No. 5206.0.

Labour market

Over the past twelve months to April 2018, employment grew by 2.7 per cent or 6,000 jobs, driven by an increase in full-time jobs (up 8,600 jobs), partially offset by a decrease in part-time jobs (down 2,600 jobs) (Figure 1.2.3).


Figure 1.2.3: Employment growth, unemployment rate and participation rate

67.0

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74.0

-1.0

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TTY Employment Growth (LHS) Unemployment Rate (LHS) Participation Rate (RHS)

Source: ABS Cat. No. 6202.0.

The participation rate stood at 71.3 per cent in April 2018, the second highest participation rate of all jurisdictions, while the unemployment rate was the lowest rate of all jurisdictions.

Employment growth is expected to moderate to a solid 2 per cent in 2018-19, before returning to its long-term trend rate of 1½ per cent over the forward estimates.

This growth outlook is consistent with a high demand for labour as indicated by job vacancy figures (Figure 1.2.4).


Figure 1.2.4: Employment and job vacancies

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Sources: ABS Cat. No. 6202.0 and 6354.0. Note: 1. Employment is monthly trend data; Job vacancies are quarterly original data.

Wages

The Wage Price Index is expected to grow at 2 per cent in 2017-18 and then pick up to 2½ per cent growth in 2018-19. Part of this increase reflects the likely timing of ACT public service wage bargaining outcomes. The underlying drivers of the relatively subdued wages growth in the ACT are otherwise unchanged, with only a modest build up in wages pressures in the near term (Figure 1.2.5).

Recent policy announcements by the Commonwealth place an upper limit on APS wages growth of 2 per cent, which will likely continue to place downward pressure on overall wages growth in the ACT. While also subdued by historical standards, private sector wages growth is expected to exceed public sector wage growth in the ACT and help to drive the stronger outlook for overall WPI in the medium term.


Figure 1.2.5: Wage Price Index growth

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(e) (f) Projections

Per c

ent (

tty)

WPI

Public sector

Private sector

Sources: ABS Cat. No. 6345.0; CMTEDD. Note: (e) denotes estimate, (f) denotes forecast.


Box 1: Recent low wages growth is a widespread phenomenon – the ACT is not unique

Subdued wages growth has been a feature of the international economy in the wake of the Global Financial Crisis. While Australia avoided a sharp downturn in wages growth, national wages growth has slowed in tandem with advanced economy wages growth. The ACT has not been exempt from this phenomenon, with the Wage Price Index (WPI) sitting at around its lowest growth rates in the history of the series, coinciding with national trends (Figure 1.2.6).

Figure 1.2.6: Wage and income growth measures – G7, Australia and the ACT

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ACT Wage Price IndexAustralia Wage Price IndexMedian G7 annual wage growth (RHS)

Per c

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row

th (t

ty)

Per cent growth (annual)

Sources: ABS Cat. No. 6345.0, OECD.

Growth in the ACT WPI has remained around its lowest rate since the series commenced for the last 15 quarters. At the same time other measures of employee income slowed. Average weekly earnings (AWE) for all employees and full-time average weekly ordinary time earnings (AWOTE) slowed in tandem with the deceleration in WPI growth. Compensation of employees (adjusted for hours worked) also slowed in line with these wages measures (Figure 1.2.7).

Even so, the ACT labour market has recently shown strength, adding 8,600 full-time jobs in the 12 months to April 2018. The level of employment in the ACT is now nearly 8,700 persons higher than in September 2012 (the pre-wage growth decline peak), the participation rate is 1.6 percentage points lower over the same time frame, while the unemployment rate is essentially the same. This would suggest at the very least that ACT labour market capacity is approaching levels seen prior to the decline in WPI growth from around 2012.


Figure 1.2.7: Wage and income growth measures in the ACT

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Jun-93 Jun-96 Jun-99 Jun-02 Jun-05 Jun-08 Jun-11 Jun-14 Jun-17WPI CoE/hour worked AWE AWOTE

Per c

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Sources: ABS Cat. No. 6345.0, 5220.0, 6302.0 and 6202.0.

Indeed, despite slowing wages growth across several measures (Figure 1.2.7, above), Average Weekly Earnings, Average Weekly Ordinary Time Earnings (for full-time employees) and Compensation of employees per hour worked were all above the WPI through the year to June 2017 and were simultaneously all above their long-run deviation from WPI growth.

However, it remains unclear if these developments will be sufficient to substantially increase wages growth in the ACT in the short term. Already, the Commonwealth government has indicated that wage increases in Australian Public Service EBAs will not exceed 2 per cent for the foreseeable future, and with around one third of employees under Commonwealth departmental EBAs due to face new agreements within the next 12 months, this sets a ceiling on pay growth for the single largest employer in the ACT.

Likewise, for the estimated 50 per cent of private sector employees on Enterprise Bargaining Agreements (EBAs) in the ACT, conditions are similarly subdued. Nationally2, EBA-negotiated pay increases have either remained flat or declined by up to 1.8 per cent over the past three years, in all but three industries. These trends are likely to prevail at the ACT level also. Moreover, at the ACT level, employment in the three industries that did experience EBA pay increases are estimated to account for only around 5 per cent of the ACT’s total workforce.

Over the medium term, though, a tightening in the labour market in the ACT is expected to place upward pressure on wages growth as employers compete to attract and retain skilled employees.

2 Data availability means that ACT trends must be estimated from national observations.


Consumer prices

Inflation in the ACT is expected to rise slightly from the 2.1 per cent growth recorded over the course of 2016-17 to 2¼ per cent in 2017-18. Inflation is then expected to remain at 2¼ per cent in 2018-19 before returning to the mid-point of the Reserve Bank of Australia’s target band thereafter.

Domestic economic pressures from the non-traded goods and services sectors are likely to continue to be the main drivers of inflationary pressure in 2018-19 and across the forward estimates (Figure 1.2.8).

Figure 1.2.8: Consumer Price Index growth, ACT

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Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22

Per c

ent (

tty)

(e) (f) Projections

CPI

Non-tradeable inflation

Tradeable inflation

Sources: ABS Cat. No. 6401.0; CMTEDD.

Population

The ACT’s population was estimated at 412,617 on 30 September 2017, an increase of 7,165 people, or 1.8 per cent growth, since September 2016. Net overseas migration of 3,492 people and natural increase (births less deaths) of 3,352 people were the key contributors to this growth, while net interstate migration added 321 people.

Looking forward, the ACT’s population is forecast to grow by 1¾ per cent in 2018-19 and 2019-20 before falling slightly to its long term average of 1½ per cent thereafter. Population growth from natural increase will be the largest contributor, supported by ongoing net overseas migration. Net interstate migration is expected to make a small positive contribution, as the strong economic outlook and jobs growth continue to attract people to the ACT (Figure 1.2.9).


Figure 1.2.9 ACT population growth by component

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Natural Increase Net Overseas Migration Net Interstate Migration

Pers

ons

Sources: ABS Cat. No. 3101.0; CMTEDD. Note: (e) denotes estimate, (f) denotes forecast, (p) denotes projection.

Housing market

Canberra’s residential property market remains robust, supported by low interest rates, strong employment growth and strong population growth.

While there has been some recent volatility in dwelling commencements, other indicators point to future ongoing strength in the housing market, with the number and value of building approvals increasing significantly in March 20183.

Demand for free standing housing remains high. The Government’s land release program aims to maintain an ongoing supply of detached housing blocks in greenfield developments in order to meet this demand. At present, around 1,000 new detached residential houses are approved for construction each year.

To meet the housing demand from this growing population the Government will target the release of land for 17,000 new homes over the next four years.

3 In comparison to March 2017.


Figure 1.2.10: Turnover and median price, houses and units, original data

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Source: ACT Government, Access Canberra.

Figure 1.2.11: Number of dwelling commencements and completion, seasonally adjusted data

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Number of Dwelling units completed Number of Dwelling units commenced Source: ABS Catalogue Number 8752.0.


Figure 1.2.12: Dwelling Approvals by type, original data, 12-month rolling total

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HousesSemi-detached, row or terrace houses, townhouses - TotalFlats units or apartments - Total including those attached to a houseTotal Residential

Source: ABS Catalogue Number 8731.0.


2018-19 Budget Paper No. 3 23 Australian economic outlook

1.3 AUSTRALIAN ECONOMIC OUTLOOK

The Australian economy expanded by 2.1 per cent in 2016-17, and strengthened further over the latter half of 2017. The national economy is forecast to grow by 2¾ per cent in 2017-18 in the 2018-19 Commonwealth Budget, rising to 3 per cent in 2018-19 and across the forward estimates.

The highest global economic growth in six years, along with a positive outlook, is expected to support the Australian economy, including through strong mining exports. Infrastructure investment by both the Commonwealth Government and States and Territories is also contributing to the solid growth outlook.

The Australian labour market is performing strongly in 2017-18, with employment growth expected to be 2¾ per cent. It is then forecast to moderate to 1½ per cent in 2018-19 and over the forward estimates.

The 2018-19 Commonwealth Budget’s outlook for wages growth is for 2¼ per cent in 2017-18, rising to 3½ per cent by 2020-21. The increase is driven by the expectation of continuing absorption of spare capacity in the national economy, mirrored by recent improvements in the Australian labour market. However, the effects of this will be somewhat offset by ongoing strong population growth.

Overall, the prevailing low interest rate environment, a supportive Australian dollar, sustained population growth, as well as strong non-mining investment are all expected to underpin a positive national economic outlook.

2018-19 Budget Paper No. 3 24 Australian economic outlook

2018-19 Budget Paper No. 3 25 International economic outlook

1.4 INTERNATIONAL ECONOMIC OUTLOOK

The International Monetary Fund has recently revised up its outlook for advanced economies for the 2018 calendar year, to 2.5 per cent.

Most major advanced economies are undergoing a period of fiscal expansion. Over the next two calendar years, cumulative stimulus from public balance sheets in advanced economies is projected to reach levels not seen since 2012 to 2013. Meanwhile, OECD measures of global consumer confidence are at their highest level in a decade, while measures of global business confidence have improved consistently over the past two years.

The growth outlook for Australia’s major trading partners4 has also improved, with growth anticipated to be 4¼ per cent in 2018, 2019 and 2020 – an upward revision of ¼ of a percentage point in 2018.

Despite upward revisions to the global growth outlook, the International Monetary Fund considers that risks to the outlook over the medium term remain skewed to the downside. In particular, the Fund notes that globally easy financial conditions may create a build-up of financial vulnerabilities in both advanced and emerging economies. The possibility of worsening geopolitical conditions is also identified as a risk.

4 China, US, Japan, South Korea, UK, NZ, Singapore, Thailand, India and Germany.

2018-19 Budget Paper No. 3 26 International economic outlook

2018-19 Budget Paper No. 3 27 Economic strategy

1.5 ECONOMIC STRATEGY

Economic strategy

The Government’s economic strategy continues to focus on growing and diversifying the ACT’s economy. Increased diversity will support economic growth, improve our productivity and create more employment opportunities for Canberrans. The Government has identified a range of key capability areas as drivers of long-term wealth creation and jobs in the ACT economy.

Infrastructure

Over the next four years, the Government will invest $2.8 billion in physical and digital infrastructure which includes the Capital Works Program, Infrastructure Investment Provisions, and expenditure on Public Private Partnerships projects.

The Capital Works Program will deliver $1.6 billion of projects over four years. This includes investments in transport, health, education, city and urban infrastructure, justice and community services. The Program includes funding of $552 million for new initiatives in the 2018-19 Budget and $1.1 billion for existing projects from previous years.

The infrastructure investment provisions identify funding for significant capital works projects for which budgets are yet to be settled, or which are commercially sensitive. These provisions amount to $1.1 billion over four years and reflect a prudent budgetary strategy in identifying significant future calls on the budget.

Both of the ACT’s current Public Private Partnership projects – the ACT Law Courts Facilities and Light Rail - Stage 1 – are nearing completion. The contracts for these projects allow for a total investment of $867 million over the five years from 2015-16, with $38 million allocated to the two years to 2019-20.

In addition to the ACT Government’s investments, the private sector also plays an important role in the provision of infrastructure across the Territory. A key component of the Government’s growth strategy is to foster an environment that promotes private sector investment across the Territory.

The Government has facilitated the development of the Constitution Place precinct in Civic (adjacent to the Legislative Assembly building), as well as the redevelopment of the Dickson Motor Vehicle Registry. Both projects will establish integrated complexes that feature accommodation, office space, restaurants and cafes, and retail outlets. Moreover, these developments will incorporate significant sustainability measures, efficient and streamlined working arrangements and practices that encourage collaboration, flexible working models and versatile office accommodation.


Under the National Partnership Agreement on Asset Recycling between the ACT Government and the Commonwealth, all remaining sites on the program must be sold by 2018-19. These sales will enable redevelopment of the properties by the private sector, with flow-on benefits to be realised in construction activity, job creation and the better use of assets.

Many of these properties are located along the Light Rail – Stage 1 corridor or within prominent urban areas. Their redevelopment will further progress the Government’s goal of creating a seamless connection between urban and city living, job opportunities and leisure activities.

Public Housing Renewal Program

The ACT Government is investing $608 million over four years in the renewal of public housing in the Territory. Under the public housing renewal program, the ACT Government will replace 1,288 older dwellings with new, more suitable housing that meets the current needs of our tenants.

The aim is to improve on the outcomes for public housing tenants by providing contemporary, energy efficient dwellings, and contribute to the renewal of Canberra’s urban areas, including increasing the diversity of housing choices.

The Public Housing Renewal Taskforce was established in 2014 and is constructing or purchasing new homes, ranging from single dwellings to small developments that are ‘salt and peppered’ in both new and established areas across the Territory. By 15 June 2018, the Taskforce will have delivered 810 new dwellings with a further 163 properties anticipated to be delivered by the end of 2018. The remaining 315 homes will be delivered in 2019.

Land release and affordable housing

Canberra’s population continues to grow strongly at around 7,000 people each year. To meet the demand from this growing population the Government will target the release of land for 17,000 new dwellings over the next four years.

New suburban releases will take place in Gungahlin, West Belconnen and Molonglo. Urban renewal will take place along the Northbourne Avenue corridor, while from 2019-20 the focus will shift to the City and the Kingston-East Lake urban renewal area.

The introduction of housing targets under the City Renewal Authority and Suburban Land Agency Act 2017 means that the ACT Government now sets targets on the number of dwellings in Government land releases that will be set aside for affordable home purchase, public housing and community housing. This will strengthen the supply of affordable housing over time.


For 2018-19, a target of 552 dedicated public, community and affordable dwellings will ensure affordable, stable and secure housing options continue to be provided for people on lower incomes spread right across Canberra, in both urban renewal and greenfield areas. The 2018-19 targets also include a high proportion of compact blocks for terrace or townhouse type homes. Of the 552 sites, an estimated 250 of these will allow for separate, individually titled homes suitable for small families.

For land releases that include affordable home purchase targets, dwellings will be sold to individuals who meet new home purchase eligibility criteria including household income thresholds, residency and previous property ownership.

As a further measure to test and support new ideas that increase affordable housing options, a second expression of interest round will be held for the Housing Innovation Fund. Grants will be made available up to a combined value of $500,000.

Diversifying the ACT economy

The Government is focused on creating the right environment for business investment and growth by simplifying the regulatory environment and reducing barriers to innovation and entrepreneurship. In addition, international engagement – through our exporters, higher education students, skilled migration and inbound foreign investment – is critical for the development of the ACT economy.

In this Budget, the Government commits an additional $19.9 million over four years to support innovation, diversification and the continued growth and development of our private sector economy.

This Budget continues the Government’s support for collaborative building projects in partnership with our higher education and research institutions across key sectors including space, spatial and satellites, cyber security, sports technology, health innovation, information and communication technology, e-government and agri-tech, and environmental sciences.

The Government’s formal support for defence industry advocacy through the Defence Industry Advisory Board will also be an important continuing initiative, and Canberra is actively vying to be a contender for the home of Australia’s new Space Agency.

In this Budget, the ACT Government is providing $9.8 million in sector development program support over the next four years and a further $1.6 million to support major project facilitation.

Higher education and research

International education exports increased 24 per cent in 2016-17 to $786 million making it our largest discrete service export. Per capita, the ACT now exports more education services than any other Australian state or territory. We are working to expand this sector even further through our ongoing collaborative endeavours such as the ACT Vice Chancellors Forum and Study Canberra.


A further opportunity currently being explored is a possible new UNSW campus and innovation precinct in the City’s East. This is occurring in line with a Memorandum of Understanding signed between the ACT Government and UNSW in December 2017.

Tourism

For the year ended December 2017, Canberra attracted 243,000 international overnight visitors and 2.75 million domestic overnight visitors, who together contributed $2.1 billion to the local economy. With the advent of 14 direct international flights, these numbers are set to grow.

The Government continues to support a range of innovative tourism marketing and development programs, in partnership with local industry, national bodies and institutions, which aim to support the Territory’s economic development through increased visitation to the ACT and region. The ACT Government is committed to its Tourism 2020 goal of achieving $2.5 billion in overnight expenditure by December 2020.

In this Budget, the Government is committing a further $2.2 million to Brand CBR to strengthen our promotion of Canberra as a great place to work, study and invest.

The contribution of events

The ACT Government – through Events ACT – manages, supports and delivers key signature events including Floriade, Floriade NightFest, the Enlighten Festival, New Year’s Eve, Australia Day, Canberra Day, Symphony in the Park and the Canberra Nara Candle Festival. As well as adding to community vibrancy and promoting Canberra to domestic and international audiences, such events provide an important contribution to the visitor economy. Over the course of last year, over 804,000 people participated in events and festivals directly managed by the ACT Government.

In this Budget, the Government commits an additional $6.3 million to deliver new and existing events for Canberrans and visitors to the city.

Taxation Reform

The Government is committed to making the Territory’s taxation system fairer, simpler and more efficient. The ACT is the first jurisdiction to abolish taxes on insurance premiums and we are continuing to reduce conveyance duty each year with the revenue replaced through the general rates system.

These changes will ensure a stable revenue base into the future to support the delivery of the services Canberrans expect, and ensure future generations do not bear the economic costs of an unfair and inefficient tax system.


Residential conveyance duty rates will continue to reduce across all property price values in 2018-19 and across the forward estimates. From 1 July 2018, conveyance duty on commercial property transactions of $1.5 million or less will be fully abolished. This will mean that the majority of commercial property transactions in the ACT will no longer be subject to conveyance duty, and will provide substantial savings, particularly for small businesses.

The Government is also making it easier for young Canberrans and those on a low income to own their own home by abolishing conveyance duty for eligible first home buyers from 1 July 2019.


2018-19 Budget Paper No. 3 33 Risks to the economic outlook

1.6 RISKS TO THE ECONOMIC OUTLOOK

While the budget forecasts show ongoing strength in the ACT’s economy, there are a number of risks to this outlook. Domestic and international risks to the broader Australian economy remain the primary channel through which these risks may affect the ACT.

The level of household indebtedness in Australia continues to be an important downside risk to the ACT economy. Nationally, household debt to Gross Domestic Product levels are amongst the highest in the developed world. While the pace of growth of riskier lending has moderated, the accumulation of debt increases the risks associated with any correction in the market.

Expected increases in global interest rates are also likely to place upward pressure on mortgage interest rates faced by Australian households, given that a significant share of Australian mortgages are financed by offshore borrowing. The scale and scope of unethical lending practises revealed by the Banking Royal Commission may also exacerbate household financial vulnerabilities and the outcomes of the Commission may lead to tighter regulation of credit availability in the future.

The Commonwealth Government’s public service decentralisation agenda, if accelerated, also represents a risk to the ACT’s economic outlook. Following the relocation of the Australian Pesticides and Veterinary Medicines Authority, the Commonwealth Government has not announced plans to relocate any additional agencies of a significant size.

There are also upside risks from the possibility of higher than forecast growth in the ACT’s education exports. A related upside risk is the potential for the establishment of a new 10,000 student UNSW campus in Canberra.

The mooted permanent establishment of the new Australian Space Agency in Canberra, if realised, would also represent a potent boost to the ACT economy.

There are also upside risks in relation to population and economic growth, as the strength of the ACT labour market may increase net interstate migration to the ACT above that currently forecast.

2018-19 Budget Paper No. 3 34 Risks to the economic outlook

Documents

2018-19 Budget Economic Performance, Outlook and Strategy · 2018-19 Budget Paper No. 3 5 Economic performance, outlook and strategy CHAPTER 1 . ECONOMIC PERFORMANCE, OUTLOOK AND