ACT rate rises not enough to replace lost revenue: review

The review has said this could also indicate the government is not being up-front about the next stage of tax changes.

A review of the ACT's 2024-25 budget has also said the territory's budget position was becoming more vulnerable over the coming years as net debt is expected to increase by 70 per cent.

"A short-term increase in net debt can be a sensible response to adverse economic shocks, such as the COVID-19 pandemic, and can be justified when investing in future wealth generating assets," the Pegasus Economics report said.

"However, continuing high levels of debt are undesirable as they impose debt serving costs and can reduce future budget flexibility."

Net debt is forecast to reach $12 billion over the next four years. The territory is also expected to be hit with a higher bill for interest repayments, which will reach more than $830 million by 2027-28.

The forecast for interest expenses is $127 million more than the estimated 2023-24 outcome and is forecast to increase by a further $318 million over the forward years.

The Pegasus Economics review, commissioned as part of the Legislative Assembly's estimates process, also said the territory had become more dependent on the public sector since the COVID pandemic.

The 2024-25 budget, unveiled last month, forecasts the budget deficit will be $830 million for 2023-24.

Pegasus Economics reviews the budget most years for the committee.

This year's analysis - written by Alistair Davey, Brett Kaufmann, Roger Fisher and Susan Antcliff - said the reduction in revenue from residential and commercial stamp duty will far exceed the increase in general rates as an overall percentage of own-source revenue.

"When expressed as a percentage of total own-source revenue, the increase in rates is less than the decline in stamp duties," the review said.

"The level of rates as an overall percentage of total own source revenue remains largely flat at just over 25 per cent in 2024-25 and through into the out years."

The ACT government has yet to reveal its plan for stage four of rate rises. In the current stage residential rates rise by an average of 3.75 per cent a year. The fourth stage is expected to start in 2026-27.

The review suggested the government was not being transparent about how this fourth stage would work given rates as a proportion of revenue would not increase. There was also another possibility the government was changing its tax program, the review said.

"The ACT government is backpedalling to some degree on its tax reform by not increasing rates sufficiently to make up for the reduction in stamp duty as an overall percentage of own-source taxation revenue," the review said.

The analysis noted the government was relying more on income from payroll tax, which made up 29 per cent of revenue and is forecast to reach one-third of total own-source revenue by 2027-28.

The ACT government has forecast it will collect a total $522.5 million in general residential rates in 2024-25, up from $494.4 million in 2023-24.

The government is expecting to receive $230 million in residential stamp duty taxes in 2024-25, down from nearly $255 million in 2023-24.

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Stamp duty is expected to be phased out completely by 2032, in a plan still being pursued by the government.

Chief Minister Andrew Barr said last month the ACT would phase out stamp duty for owner occupiers ahead of investors.

"We have set out a long-term plan, we've made considerable progress on that," he said last month.

"We'll announce some further details in relation to stage four of tax reform but at the moment we've seen stamp duty fall from 25 per cent of our own-source revenue to less than 10 per cent and it's on its way to zero."

Budget estimates hearings are set to begin next week.