ACT budget: interest rate rises curb housing demand, signal subdued growth, Andrew Barr says

Chief Minister Andrew Barr said the slowdown in housing demand was part of the reason economic growth forecasts have been reduced in next week's territory budget.

"We've found that even people who have registered for land ballots who won the ballot are not turning up to purchase their block," Mr Barr said in a pre-budget interview with The Canberra Times.

"There are now blocks for sale over the counter. So I think that indicates a moderating of demand for new housing. There's still obviously population growth that is keeping demand up but it's certainly not at the levels we were experiencing when interest rates were at all time lows."

Mr Barr said the government still expected the land - a significant source of the territory's revenue - would sell in time, but the sales would take longer.

Interest rate increases would have an impact on land sales revenue next year before returning to normal in the budget out years, he said.

"I think I can report a balanced budget over the four years," he said.

Mr Barr expected the ACT would still avoid a recession.

"We are expecting some short-term headwinds, but now the economy has grown for 32 consecutive years. And so we're confident we will avoid a recession but clearly the rate of economic growth will not be as high as the previous 12 months," he said.

Reserve Bank governor Philip Lowe has said Australia was on a "narrow path" to bring down inflation without triggering a recession.

The Reserve Bank board has raised the cash rate target in 12 out of the last 13 months, bringing it up from 0.1 per cent to 4.1 per cent.

The result has been a significant increase in borrowing costs, for households with mortgages and governments.

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Mr Barr said the ACT would, as a result, experience a "period of subdued growth".

But the government's interest earnings on its investments had "increased significantly".

"We're not projecting that the [gross state product] will go backwards or state final demand, but they're going to moderate considerably from the growth that we've experienced this year," he said.

The budget would be designed with a slowing economy in mind where the level of disposable income in at least 40 per cent of ACT households, which have mortgages, would be significant less as a result of interest rate rises, he said.

The Chief Minister said he expected the Reserve Bank would need to consider rate cuts in the "not too distant future" when inflation was deemed to have been tamed.

Mr Barr said some government intervention would put downward pressure on inflation.

"I think probably the other thing we're very conscious of in setting fees and charges for the coming fiscal year is that increases are below inflation and are more in line with the wage price index," he said.

The budget would forecast wages to rise by 3.75 per cent in the coming fiscal year, in line with the forecast in previous budget review.

The 2022-23 ACT budget forecast a deficit of $483 million, which was revised down to $461.5 million in the mid-year budget review in February.

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