Growth matters
Is the ACT’s economy set up to deliver for Canberrans?
So far, we’ve argued that human flourishing is the purpose of government and that the ACT is failing to enable people to lead flourishing, prosperous lives. Today’s essay explores why that is and asks if our economic model is delivering what Canberrans need.
The current growth model
One way to understand the economy is to think of it as a process. It’s a process by which society transforms its resources (like workers and land) into products and services that people want (like homes and food). It’s a process of inputs and outputs. And when the value or the volume of outputs increase — when we have more of the things that people use and value — then the economy has grown.
We realise economic growth in two ways. One is that we can accumulate more inputs — such as growing the workforce through migration — and the other is that we use the same inputs more productively, to get more from less.[1]
The economic model we have in the ACT is mostly based on the first approach: growing our economy through population growth, driven almost entirely by the Commonwealth. More federal spending means more federal jobs, often based here in Canberra. As our unemployment rate is so low, these roles are usually filled by people migrating to the ACT.
The ACT Government is also dependent on that population growth. Without the ability to tax Commonwealth jobs or spending, the ACT generates the majority of its revenue from land, including rates and stamp duty[2]. This means the ACT Budget is better off in periods of buoyant population growth but exposed in periods of slower growth. Given the current strains on the Budget in a period of relative growth, any slowdown would almost certainly lead to service cuts across government.
The local private sector is dominated by the property industry, which is also dependent on population growth: it largely exists to build homes for those who are migrating here to fill Commonwealth vacancies. The rest of the private sector is a collection of hospitality, retail and services businesses, which improve quality of life but are too small to be a significant driver of local economic growth.
So our economy and our government depends on population growth.
Implications
Economic growth matters and the ACT economy has seen robust growth over the last decade, averaging about 3.5% a year. This is a strong number for any advanced economy over any decade but is particularly impressive given it includes the pandemic years.
The same period has seen strong, persistent growth in household spending – a good proxy for living standards – averaging around 2.1% a year. But most of this comes from population growth, which has been 1.8% over the same period.[3] Canberrans themselves aren’t getting much benefit: our economy may be growing but living standards aren’t rising.
The ACT is also becoming increasingly dependent on the Commonwealth. The public sector now accounts for more than 60% of local economy activity, up from less than half in the early 1990s, and three-quarters of our growth in the last decade came from bigger government. Only one-quarter of our growth came from households and businesses doing better.
This dependence comes at a time when most APS agencies have had some kind of workforce caps imposed over the last 12 months, some are now openly offering voluntary redundancies, and that pressure is growing a result of the latest Commonwealth Budget. The potential for the Commonwealth to reduce workforce spending, coupled with the growth of remote work, means population growth – which has already slowed markedly – continues to decelerate or even to stall completely.
This would have a terrible impact on our whole economy, hitting house prices, local businesses, and the ACT’s already-parlous fiscal position. The damage would go beyond the rate of growth and hurt our standard of living – and all of this is beyond our control.
That’s the price of dependence and the risk we take with our current economic model of depending entirely on the Commonwealth.
The structural challenge
The data already shows our economic model isn’t leaving Canberrans better off. But the problem runs deeper than that: our model isn’t capable of working. There’s no pathway, theoretical or empirical, by which dependence on the Commonwealth produces sustained improvements in the living standards of Canberrans.
Our experience is hardly unique: it’s the same experience of any economy that has sought growth through accumulation, throughout all of human history. There’s a reason economic growth didn’t take off until the Industrial Revolution enabled societies to pivot away from accumulation and towards productivity growth.
Modern economic growth derives from productivity, and a process where new knowledge and ideas are formed through scientific and commercial research, which are transformed into useable innovations and technologies, and applied commercially. New discoveries spill over into other teams, firms, and industries, creating benefits across the economy. As labour becomes more valuable and technology drives costs lower, the benefits of economic progress diffuse throughout society and raise individual prosperity.
The challenge for the ACT is not just having embraced a model that is unable to deliver the growth we need, it’s that we have also suppressed the very things we need to pivot towards this type of growth.
Startups, small businesses, and major corporations all know the ACT is a poor value proposition. We have made it prohibitively difficult to start, run, and grow a business: we impose enormous regulatory and tax burdens; talent is expensive and largely locked away in the public sector; and real estate is expensive. The innovation and startup activity that we need to grow just isn’t viable here.
There’s no easy way out of this. We cannot tinker with our current model and hope to make it work. We need to acknowledge that we have a structural problem which will require a structural solution.
That’s not to say that we need to turn our backs on the Commonwealth or stop migration into Canberra. Rather, it’s about diversifying our economy by also embracing other opportunities, and using those opportunities to become more prosperous and independent than we would otherwise be – and better equipped to address the non-economic challenges that our community faces.
Only then can we ensure Canberrans experience the growth they need to flourish and to lead better, more fulfilling lives.
Conclusion
If our goal is to improve the lives of Canberrans, we need to ensure we have an economic model that delivers growth and prosperity. Our current model of depending on the Commonwealth is not delivering what we need and shows that we need to pivot to an alternative model.
It’s time we made that move.
[1] Some people imagine productivity growth to mean forcing people to work harder but this rarely works; it’s more about embracing innovations and technology.
[2] The ACT generated $3.1 billion in own-source revenue in 2025-26. Of this, 38% came from rates, 12% from stamp duty, and 1% from the Lease Variation Charge. This excludes levies which are imposed as a rates surcharge (e.g. the Emergency Services Levy and the Safer Families Levy). This does not include land sales.
[3] These numbers have different methodologies so you cannot subtract one from the other and conclude ACT households were 0.3% better off each year for the last decade.