5 Jul 2006

Budget Crisis in the ACT

By Peter Martin
By extending commercial leases to 99 years, the ACT has been the author of its own decline, says Peter Martin

There's something about the ACT's funding crisis that doesn't add up.

In last month's Budget, the Territory's Chief Minister and Treasurer, Jon Stanhope, announced plans to close around one quarter of the Territory's schools. He is to pull the pin on 22 preschools, 15 primary schools, one high school and one college.

And he is to do it at a time when the wealth of Australians, and ACT citizens, has never been higher. Australia is enjoying its 15th straight year of economic growth. The ACT's unemployment rate is Australia's lowest.

If Australia was in a recession it would be easy to understand belt-tightening. But at a time of record prosperity?

Jon Stanhope says it's a question of Government income. While the citizens of the ACT are indeed spending more than ever before, that money hasn't been trickling through to their Government. In his words, the ACT has the 'narrowest revenue stream' of any State or Territory.

But why would that be? It was meant to have the most lucrative.

When Canberra was built on land acquired from farmers in 1913, the land was to remain government-owned. The Constitution requires that the national capital be on land 'vested and belonging to' the Commonwealth. Speaking in the House of Representatives in 1903, founding father Sir Edmund Barton made his intention absolutely clear: 'Within the area that is chosen, the Commonwealth should be the landlord or the proprietor of every square inch of private land.'

Rather than selling blocks of land, the Commonwealth sold leases permitting the use of that land for specified periods of time. Householders were sold 99-year leases and businesses were usually sold shorter leases, many of them for 50 years.

Continuing to own the land on which Canberra's businesses and houses sit has been enormously useful to the Commonwealth, and later to its successor, the ACT Government. It has enabled them to enforce very strict planning controls ('build it our way, or you will be in breach of the lease') and made it simple to collect rates ('if you don't pay, we will kick you off').

It has also provided the ACT administration with a guaranteed future revenue stream, as intended by the drafters of the Constitution.

That revenue was never likely to come from householders. The residential lease term of 99 years was very long, and electoral pressure would likely prevent the charging of a new fee to extend leases when they expired. All of the Territory's residential leases have since been extended to 999 years (complying with the letter, but certainly not the spirit, of Edmund Barton's wishes).

But business leases were set up to be a source of continuing revenue. After the first 50 or so years of Canberra's life, business leases were set to come up for renewal virtually every year. Because the leases were sold and valued in the knowledge that they expired after a period of time, businesses planned in the knowledge that they would have to shell out fresh money to buy new leases when they expired.

But it was easier and far more lucrative for businesses to lobby both sides of the relatively young ACT House of Assembly. Just before Christmas in 1996, both the Liberal and Labor Parties in the House of Assembly voted to convert all commercial leases from 50 years to 99 years, without charge.

It represented a windfall for the holders of existing commercial leases. Estimates put the value of the change at between $115 million and $1.2 billion.

Australian National University economist Julie Smith predicted that 'present and future ACT citizens [will] pick up the tab with either a 13 per cent addition to residential rates, or further cuts to health, education and community services.'

Smith specialises in urban economics and the economics of public health. As it happens, she is a pretty good economic forecaster.

At the time, members of the 'Liberal and Labor branches of the ACT Property Party' as Smith called them, poured scorn on her claims. But she was right. The baby government of the ACT (self-government was less than a decade old) had sold out its economic future.

Jon Stanhope wasn't in the ACT Government at the time. It was his predecessors who ensured that he has, as he now puts it, the 'narrowest revenue stream' in the country.

As an ACT resident explained at the time, giving evidence to a Commonwealth Parliamentary Committee: 'it was as if they said to single mothers living in public housing œokay, we will give you the house now, you can stop paying rent '.

The ACT has been the author of its own decline.

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