The ACT economy is among the fastest growing in Australia, on the back of the housing boom and gridlock in the federal parliament, Deloitte Access Economics says in its latest business outlook.
The “two big levers” in the Canberra economy were federal government spending and interest rates, because the city was “one big fat mortgage belt” built around the public service.
ACT Chief Minister Andrew Barr: Canberra has one of the fastest growing economies in Canberra. Photo: Rohan Thomson
“From a Canberra resident’s viewpoint, long may gridlock reign, because it’s bad for the nation, good for us,” partner Chris Richardson said.
“Somebody at some stage will be back in charge of Australia. We haven’t really had a government with its hands on the wheel for a while. And you’d have to think that that could be a dangerous phase for Canberra when that eventually does happen, simply because the deficit remains pretty entrenched and you’d expect us to be part of the grand bargain – the lower spending and the higher taxes that get us on to to a sustainable setting for the budget.”
Mr Richardson said the Reserve Bank’s two cuts to interest rates in 2016 had helped push along the ACT economy.
“It may not have quite the excitement of Sydney housing prices, but things are pretty solid and that increase in wealth is making people happier – and hence happier to shop than they’d otherwise be,” he said.
“We’re essentially past that phase of notable cutbacks in the public service, and that combination, interest rates down and the negative of public sector cutbacks now mostly in the rear vision mirror, means that the ACT economy is actually travelling pretty well, among the fastest growing in Australia.”
Mr Richardson said the 2016 interest rate cuts had pumped up the country’s “already overly botoxed housing prices”, resulting in Australia’s 9.23 million households having a net worth of $9.4 trillion. This meant that Christmas 2016 “saw the average Aussie family become millionaires”.
Deloitte Access economist Chris Richardson: From the viewpoint of a Canberra resident, long may federal gridlock remain. Photo: AAP
But interest rates would rise. Global markets were already pricing in more inflation and growth, and while he didn’t expect Australian rates to start rising until 2018, “rise they will”.
“Housing prices are dangerously dumb, and the Reserve Bank won’t want to add further fuel to that fire,” he said.
While Canberra was vulnerable to interest rate hikes, it was reducing its reliance on stamp duty tax on house sales, a move “totally to be applauded from the viewpoint of economists”, and one that would lessen the impact on the ACT budget of the eventual turn in the housing cycle.
The ACT’s economy, as measured by state final demand grew 7.3 per cent in 2016, on the back of increased federal government spending and a big jump in both federal government investment and private investment – mainly in housing.