Chief Minister Katy Gallagher turns to Kate Carnell on 2014 budget advice

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As much as $150 million was ripped out of the bottom line of the ACT budget with the federal budget cuts on Tuesday, ACT Chief Minister Katy Gallagher said, giving the states and territories no choice but to consider an increase in the GST.

The cuts had created a “massive black hole” in the ACT budget, which would no longer be able to be signed off on Tuesday, she said. Revenue streams across the board would have to be downgraded, and spending priorities would have to be reconsidered.

Ms Gallagher said between 6500 and 8000 jobs would be ripped from the federal public service in Canberra, 3 per cent of the workforce, with flow-on impacts throughout the economy. Two thousand jobs would go from Canberra in the next 12 months, half the nationwide cuts.

“Our neighbours, our friends, people our kids go to school with, their job was taken last night,” she said, describing the budget as a “pretty nasty targeting of Canberra”.

It would force the states to look at a higher or broader GST. “We’ve had it forced upon us now. There’s no way of avoiding it because we can’t take responsibility for the black hole created by the Commonwealth if there is no revenue stream,” she said, while acknowledging the “disproportionate impacts” of increasing the GST or broadening the base.

Treasurer Andrew Barr said lower employment meant lower payroll tax. Slowing population growth meant less demand for housing, hitting rates revenue, stamp duty and land tax. Land sales were a large part of the Government income and would be hit by lower demand. More people out of work meant more people eligible for ACT government concessions and pressure on other services.

The ACT government would do what it could to buffer the impact, with no job cuts in the ACT public service, and more spending on capital works to create economic activity and jobs, but it was unlikely to be able to plug the gap, he said.

“It’s all very well for the Commonwealth to fix their bottom line. All they have done last night is pass the problem to states and territory and to each individual household,” he said.

Mr Barr is looking to significant borrowings to fund an ambitious capital works program to stimulate the Canberra economy, with everything from a new hospital to a new swimming pool, stadium and convention centre on the table as well as the Capital Metro rail project.

But former chief minister Kate Carnell, now chief executive of the Australian Chamber of Commerce and Industry, warned the government to “a be a bit careful” on borrowings, with limited options for raising money to repair a territory budget deep in the red other than higher land taxes and rates, which could discourage business and make the city uncompetitive. “Absolutely it’s good to have some infrastructure projects but, in the ACT,  you need to keep the debt low because there’s not a lot of ways of getting it back under control,” she said.

Ms Gallagher has sought a meeting with Ms Carnell, looking for ideas on how she weathered the recession sparked by John Howard’s unprecedented job and service cuts in Canberra in 1996, especially her incentive program for businesses to employ young people.

Ms Carnell said the answer was to mobilise the private sector. Commonwealth outsourcing meant big opportunities for local business, well placed to pick up the work.

“What happened last time was we had three consecutive quarters of negative growth, but within two years the ACT’s growth was among the fastest in Australia. Things turned around moderately quickly and, to some extent, that was because a lot of the outsourcing the government did was picked up by local businesses,” she said.

Ms Gallagher will also ask Prime Minister Tony Abbott for support, arguing that when other jurisdictions lose major sectors of their economy, they access federal rescue and support packages.

“If they’re going to wipe out 6500 jobs over the next four years … any other community would be given support as they transition. And why aren’t we?” she asked. “The city can’t just absorb those cuts in the public sector.”

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