Treasury

2011-12 Fiscal Strategy

The Government remains committed to the principles of responsible financial management.

In the 2011‑12 Budget, the Government will meet its plan of returning the Budget to surplus by 2013‑14 alongside the delivery of services in priority areas, to meet the needs of Canberrans. 

The Government continues to maintain its fiscal strategy, which has been successful in dealing with cushioning the effects of fiscal shocks experienced in preceding years.

The Government’s financial objectives and key measures are:

• to achieve a General Government Sector Net Operating Surplus;
• to maintain operating cash surpluses;
• to maintain a AAA credit rating;
• to manage debt prudently and maintain net financial liabilities within the range of all AAA rated jurisdictions;
• to fully fund the Territory’s unfunded superannuation liability by 2030;
• to maintain quality services and infrastructure;
• to make targeted investments to achieve strategic objectives of economic growth, reducing future costs and addressing chronic disadvantage; and
• to maintain taxation revenues at sustainable levels.

With the assistance of savings measures incorporated in this and past Budgets, the underlying expenditure trajectory has been lowered, with compound annual average growth rate over the Budget and forward estimates period being reduced by around ¾ per cent per annum.

Further information on the Budget Plan is provided in Budget Paper No. 3, Chapter 1.3 The Budget Plan Update.

The Context of the 2011‑12 Budget

The context of the 2011‑12 Budget, like the previous two Budgets, remains the global financial crisis, and its effects on the economies and budgets.

While the national as well as the Territory’s economies performed better than envisaged, structural deficits emerged and were accepted on a temporary basis.

The Federal Government committed to fiscal consolidation once the national economic growth reaches trend.  Expenditure by the Commonwealth Government has quite a significant impact on the Territory’s economy.  Its commitment to returning the national budget to surplus in 2012‑13 is a significant context for the 2011‑12 Budget and its forecasts.

The ACT Government had adopted a target of returning the Territory budget to surplus in 2015‑16.  In an uncertain economic environment, the focus was to stabilise the economy.  Sharp adjustments to follow revenue contraction were avoided to preserve services, and support consumer and business confidence.  In view of the earlier recovery of revenues, the target was advanced by two years to 2013‑14.

The Territory’s economy has performed remarkably well through the global financial crisis, and in particular over the last year, compared to other jurisdictions.  While the Federal Government’s fiscal consolidation is expected to have an impact on the economic activity in the Territory, the prospects for the economy remain positive.

The forecast for output as measured by the Gross State Product (GSP) for 2010‑11 is now growth of 2¾ per cent, compared to the 2010‑11 Budget forecast of 1 per cent.  Likewise, consumption, as measured by State Final demand (SFD) has shown considerable improvement, estimated at 4 per cent for the year compared to the original budget forecast of 1 per cent. 

2011‑12 Budget

The 2011‑12 Budget forecasts a return to surplus in 2013‑14 as planned.

The Budget makes a significant reallocation of resources – from the operating costs of public service to increasing services to the community in areas of high need, and to addressing the cost of living concerns.

Since the 2010‑11 Budget, there have been some further improvements in revenues, largely relating to the strength of the activity in the housing market. 

The Territory’s strong economic performance has affected its Commonwealth’s Grants Commission relativity for the share of GST revenue.  The national GST Pool has also grown below expectations.  The forward estimates for Commonwealth revenues reflect below trend growth.

The strength of the housing market, and the “pull forward” of activity has provided a modest increase in the revenue base.  The net improvement in revenue assists in returning the budget to surplus.

Returning to surplus is but one of the objectives of the Plan the Government adopted in response to the global financial crisis.  The Government also committed to ensuring that in restoring the surplus, core services, community safety, and risk mitigation and protection are maintained to the high standard the community expects; and that there is adequate growth in expenditures to meet the needs of a growing population, and in particular, in the priority service areas such as health and education.

Accordingly, the Government has sought significant savings – improvements in efficiency 
– in addition to the savings measures incorporated in the previous Budgets, to reinvest in priority services to the community.

New policy initiatives in this Budget total around $266 million over four years.  A significant proportion of this expenditure relates to high need areas, such as, services for the disabled 
– both in schools and at homes – ambulance services, health and education, and supporting low income families in meeting the cost of living expenses. 

The Budget has maintained fiscal restraint in an environment of growing need for services, and below trend growth in Commonwealth revenues.  New policy initiatives are largely offset by savings of around $217 million over four years.

The Government has also sought to limit the growth in the size of the public service.  The efficiency measures are targeted at both the non‑staff as well as staff expenditures.  New policy initiatives by themselves would have increased staffing by around 320 Full Time Equivalent (FTE) staff.  The net increase is estimated at 110 FTEs.  The Budget reflects a significant reallocation of staffing.

The resource reallocation task will be measured, and largely dependent on the normal staff turnover.  Targeted redundancies will be available.  There will be no involuntary redundancies.

Supply of adequate affordable residential, commercial and industrial land has been a central element of Government’s social and economic strategy.  The Budget focuses on accelerating land supply across the Territory, and developing an inventory of planning ready land to meet the needs of households, businesses and industry.  The land supply program sets a target of 18,500 dwelling sites for release across the budget and forward estimates period.

The Budget has significantly increased investment in the Territory’s infrastructure, with new investment of $885 million over four years, to deliver high quality assets in order to improve the efficiency and increase the productive capacity of the economy, and support effective service delivery to the community.