ACT Budget BRIEFING DOCUMENT. Master Builders ACT. Master Builders Association of the ACT

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1 Master Builders ACT ACT Budget Master Builders Association of the ACT 1 Iron Knob St, Fyshwick ACT 2609 PO Box 1211, Fyshwick ACT 2609 T (02) F (02) E canberra@mba.org.au W BRIEFING DOCUMENT Master Builders Association of the ACT ACT Budget briefing

2 Master Builders ACT Budget Briefing ACT Budget Overview ACT Budget Economic Outlook New construction projects Major Government construction projects announced Land Release Program Tax changes Training and education I ACT Budget briefing

3 Budget Overview The ACT economy will slow in and the Territory s Budget deficit will blow-out no surprises there. However what is surprising, particularly given the impact of the Commonwealth s cuts on the ACT which the Budget quantifies quite dramatically - is the relatively modest slowing of the economy and the relatively quick rebound of the Budget to a small deficit ($26 million) in and a small surplus ($78 million the following year. If the Budget forecasts are realised the ACT economy is heading for a soft landing. The ACT s economic growth is forecast to be 1 ¾ per cent in , down from 2 ¼ per cent this year comparable to the slowdown in the national economy forecast in the Commonwealth s Budget from 2 ¾ per cent to 2 ½ per cent. If the forecasts are realised is a big if, but previous ACT economic forecasts (as distinct from the Budget Outcome forecasts) have mostly been pretty good, so it is possible to be reasonably optimistic about them. If this not too bad outlook sinks in with the general public, it ought to relieve some of the ACT s current pessimism and by improving confidence help the economy along. While the outlook for the building and construction sectors is (again unsurprisingly) very subdued, the sector is a major beneficiary of the Government s increased spending and of the amount of new construction work which the government is bringing on quickly in to offset the impact of the Commonwealth s cuts. This is a major factor in why the economic outlook is not worse. The Budget includes significant expenditure on major new Government projects, with total new capital works announced in the Budget of $415.2 million over four years ($242.6 million), including total cash for new works announced in the Budget and to be undertaken in of $182.1 million ($157.5 million). Of this $122.7 million ($78.5 million) will be spent on construction. A further $438.4 million ($538.2 million) will be spent in on construction of projects already underway (Work in Progress). A sense of the magnitude of the increase can be seen from the figures in brackets the comparable figures from last year s Budget. (In relation to the Works in Progress figure, it should be noted that $153 million of the $699 million in capital works spending scheduled for did not occur, with $73 million rolled-over into and $83 million into ) No Budget is ever entirely good news and there are definitely some negatives in this Budget both for the building and construction industry and for the ACT more generally. The strong improvement in the Budget over the next four years is due to strong rates revenue increases and a big increase in land tax. The rates increase is the consequence of the big tax changes the ACT Government announced in the Budget, when it reduced the Budget s reliance on stamp (conveyancing) duty and increased its reliance on rates revenue. Property owners will carry the burden of fixing the Budget. The land tax increase is the result of a restructuring of land tax announced in this year s Budget. Another negative is the subdued outlook for the ACT economy in future years, with economic growth picking up from 1 ¾ per cent in to just 2 ½ per cent in and staying at that relatively modest rate for the following two years. However that relatively modest growth rate is a direct consequence of the subdued forecast national economic growth rate of just 3 per cent in each of the three years which is taken directly from the Commonwealth Budget. It would be a brave Treasury that would forecast that the ACT economy would grow more strongly than the national economy at the moment ACT Budget briefing

4 ACT Budget Briefing ACT Budget Economic Outlook According to the ACT Budget the territory s economy unsurprisingly is forecast to slow in , but if the Budget s economic forecasts are achieved it will be a relatively soft landing. Growth and economic performance will be anaemic but will remain positive if the forecasts are realised Economic growth which has already slowed to 2 ¼ per cent (forecast) in , will ease down further to 1 ¾ per cent in , however most observers would regard this as a relatively positive outcome given the magnitude of Federal Government cut backs and their effect on the ACT. Annual employment growth will slow from ¾ per cent to ½ per cent, while population growth (vital for the building and construction industry) is expected to be unchanged at 1 ½ per cent. Overall, according to the Budget the Territory s economic growth in is expected to be significantly constrained by the level of Commonwealth Government spending and uncertainty weighing on household consumption growth. Wages growth and business profits are expected to be weak but a forecast decline in real unit labour costs is expected to relieve pressure on business operating expenses. Investment is forecast to rebound slightly in , driven by both dwelling and non-dwelling investment, although the housing outlook remains subdued. Leading indicators point to additional construction work, which is expected to flow through to positive growth in , it forecasts. The Budget says, A number of large residential building projects are yet to be completed and demand for detached dwellings remains as construction continues and is set to commence in suburbs including Lawson, Moncrieff, Wright, Coombs and Jacka. However, the rebound in residential construction is expected to be short-lived due to a lack of fundamental drivers in the 2 I ACT Budget briefing

5 medium term. While low interest rates are expected to support demand, population growth has slowed, median house prices remain subdued and the Commonwealth Government s downsizing plans are expected to reduce demand. It says that engineering activity has become an increasingly important component of non-dwelling investment. The short-term prospect for engineering activity is positive according to the value of work yet-to-be done. However, project delays will remain a risk over the short term. The ACT Government s stimulus measure to accelerate construction work at Moncrieff is also forecast to add to non-dwelling investment and to bring-forward residential construction. Master Builders ACT ACT Budget Briefing The Budget deficit is forecast to increase from $265 million in to $333 million in but then rapidly fall to a near-balanced budget in (a deficit of $26 million) and (a surplus of $78 million) The Budget recovery is driven by much stronger growth in revenue as the economy improves however tax changes in the Budget are expected to add $26 million to the Government s coffers in and $28 million in The Budget s spending initiatives (mostly the capital works and construction projects detailed elsewhere in this newsletter) will add $121 million to spending in but then fall away to $48 million and $35 million in the two following years. According to the Budget the direct and indirect impact of the Commonwealth s cuts on the ACT Budget will be (a negative) $67 million in (including $40 million from reduced land sales) and $102 million in ($86 million from land sales.) ACT Budget briefing

6 ACT Budget Briefing New construction projects The Budget includes significant expenditure on major new Government projects, with total new capital works announced in the Budget of $415.2 million over four years, including total cash for new works announced in the Budget and to be undertaken in is $182.1 million. Of this $122.7 million will be spent on construction. A further $438.4 million will be spent in on construction of projects already underway (Work in Progress). Treasurer Andrew Barr addressing business and other groups yesterday immediately before he delivered the Budget noted the Government had focussed on a large number of smaller shovel-ready, construction projects on which work can commence quickly as had been requested by Master Builders. Details of these projects are in the following tables. However the Budget also includes a number of new large and medium-sized projects with construction and other expenditure starting over the next two years. These include: $1.5 in for the Australia Forum/New Convention Centre to get to investment-ready stage $16.8 million (including $15.2 million for the Calvary Public Hospital car park $43.5 million including $3.8 million in for the Secure Mental Health Unit $21.2 million ($3 million in ) for Canberra Hospital Redevelopment An undisclosed amount (for commercial reasons) for the University of Canberra Hospital Public Hospital $20 million ($8 million in for improvements to the Civic to Gungahlin corridor upgrading associated with the Capital Metro/ Canberra Light Rail project. Details of a number of these larger projects are in separate articles in this newsletter. The Budget includes total provisions of $1.319 billion for capital works over four years to These provisions include amounts for high value and/or commercially sensitive projects. The Budget also includes spending of $72.7 million on capital works projects which had been scheduled (in the Budget) to occur in but where expenditure did not occur as scheduled and a further $83.3 million in Details of these projects are in the following table headed Program Rollovers. 4 I ACT Budget briefing

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13 Major Government construction projects announced Australia Forum/Convention Centre The Budget includes $1.5 million for the Australia Forum/ New Convention Centre project which has been long planned and promoted by the ACT Government and ACT business community to revitalise the ACT convention industry. Chief Minister Katy Gallagher recently announced that the Federal Government had rejected an ACT Government request for funding towards the project, however the Budget provides funding to keep the project alive. The Budget says the Government will invest $1.5 million in in further progressing the Australia Forum convention centre project to an investment ready stage. This will include the development of a reference design and budget and analysis of procurement options for consideration by Government. The Government has also included an Infrastructure Investment Provision should funding partners come on board of up to $8 million to administer the procurement process for the convention centre. Light Rail/Capital Metro The Budget includes $20 million in and of which $8 million is to be spent in on construction in the Civic to Gungahlin corridor associated with the Canberra Light Rail/Capital Metro Project. A further $21 million has been provided for the running of the Capital Metro project agency. Construction funds will be spent on improvements and renewals in the Civic to Gungahlin corridor including road, path, drainage and intersection works and alignment preparation. The works will improve travel and amenity in the corridor and help prepare for the Capital Metro light rail, the Budget says Spending on the Capital Metro Agency includes preparing Capital Metro to an investment ready stage and, subject to the full business case, commencing the procurement and delivery of the light rail service and its operation, specialised economic and financial advisory services and stakeholder engagement activities. Land Release Program The Government has cut its planned residential land release program from 4,700 blocks a year foreshadowed in the Budget to 3,600 in and 3300 in subsequent years. The Budget says the Residential Program includes englobo releases for private sector land development. It says release and sales forecasts have been cut because of the Commonwealth public service cutbacks: As a result of the decisions of the Commonwealth Government to significantly reduce the size of the Australian Public Service and the subsequent impacts, the ACT Government has written down the overall size of its Indicative Residential Land Release Program by 3,000 dwelling sites across the next three years. The Indicative Residential Land Release Program now includes a sale target of 13,500 dwelling sites between and The annual number of dwelling sites expected to be sold has dropped from 4,700 to 3,600 in ; from 4,500 to 3,300 dwelling sites in ; and will remain at 3,300 dwelling sites in each year to The Budget Papers say that should demand exceed these sales targets, the Government will adjust supply upwards. It intends to maintain a strong supply of detached housing and establish an inventory of serviced land. The Commercial Land Release Program includes a target for the release of 353,784 square metres of commercial land over the next four years, down from the four-year target of 370,440 square metres in last year s Budget. Much of the commercial land programmed for release is part of mixed-use developments that facilitate residential infill. The Indicative Industrial Land Release Program includes a release target of 289,648 square metres of industrial land over the next four years, also down from 400,000 square metres. Budget papers say that over the four years to , the Government has released approximately 140,000 square metres of industrial land. In addition, the private sector has released 361,552 square metres in Hume and Beard.

14 Master Builders Association of the ACT 1 Iron Knob St, Fyshwick ACT 2609 PO Box 1211, Fyshwick ACT 2609 T (02) F (02) E canberra@mba.org.au W 12 I ACT Budget briefing