Scarcity
If the ACT’s economic model is broken, why haven’t we already changed direction?
Last week’s essay argued the ACT’s economic model is broken. Today’s essay looks at the consequences of that and why we have failed to change course.
Scarcity
The ACT relies on Commonwealth-driven population and spending growth to fuel our economy. It is a model that is not just failing to deliver for Canberrans but one that is incapable of delivering.
Because of this failure, scarcity has become a fact of life in Canberra. As the population has grown and our living standards have not, we simply don’t have enough of the products and services that enable Canberrans to lead comfortable, meaningful lives.
Housing is an obvious example. For many people, housing is the foundation for a meaningful life: it is what they want before starting a family, provides financial security in retirement, and an asset to underpin a new business.
But housing in Canberra is increasingly scarce. Our population keeps growing while new housing supply fails to keep up.[1] Consequently, house prices and rents are up, people are sharing with family or friends (when they’d prefer not to), homelessness has spiked, and Canberrans are moving in droves to satellites like Googong, Queanbeyan, Braidwood, Murrumbateman, Yass, and even to Goulburn.
Scarcity goes beyond housing. Opportunities are scarce as well: opportunities to enjoy food, culture, and recreation; to work outside government; and opportunities to start or build something of your own. And there is scarcity in our public services: we don’t have enough GPs or specialists to care for our population, we don’t have enough police officers to keep us safe, and we don’t have the crews to maintain the amenity of public spaces.
The problem of scarcity cuts across all of Canberra: young people and old, single people and families, blue-collar and professionals. Some impacts are large and some are minor but they all accumulate. The result is that Canberrans have a higher cost of living, fewer opportunities, and less ability to enjoy fulfilling, meaningful lives.
Consequently, people are voting with their feet. More Canberrans are moving interstate than interstate residents moving here. It’s a trend that will accelerate if we can’t overcome the problem of scarcity and offer Canberrans a better quality of life.
The persistence of scarcity
In fairness to the ACT Government, they never set out to make housing unaffordable, businesses unviable, or our public services unsustainable.
Government is a complex system, and sometimes those systems deliver unexpected outcomes. No government can escape complexity but a good government ensures there are tight feedback loops between decisions and consequences. Things like administrative data and community feedback tell government when policies aren’t delivering and need to be changed.
The challenge in the ACT is that those feedback loops don’t work so well. The scale of the public sector means many people are insulated from economic shocks; local data collection is infrequent and patchy, so impacts aren’t always known; and the ease of ‘quitting’ the ACT by moving across the border means many people don’t voice concerns. The result is that our government is less informed about what’s working and what’s not.
Over time, a lack of feedback can become a lack of interest in feedback. Complacency sets in across government, and the consequences of decisions become less important than the perception: whether government policy is actually making housing affordable matters less than the announcements, the intentions, the vibe that it is doing so.
The Westminster system provides safeguards against complacency: an Opposition eager to prove government failure, competing media operations hungry for stories, and voters willing to switch to other parties. These institutions provide accountability and drive governments to address problems they might otherwise ignore.
But the Westminster system breaks down when the Opposition is not a credible alternative government, when the media don’t provide adequate scrutiny, and when voters are disengaged or uninformed. Which means issues like housing affordability can fester for years without action.
This is the challenge we face in the ACT: government is not delivering the desired outcomes, the lack of effective feedback has made government complacent, and our institutions are failing to hold them accountable. Without a price to be paid for failure, bad decisions and bad policies persist — and our quality of life is worse than it ought to be.
The ACT Government may not have intended any of this but it is the result of their decisions and their complacency. Which means they are responsible for the state we are in, whether they intended it or not.
Stagnation
Even if the ACT government wanted to embrace a new economic model, there’s no clear way to make it happen. So much of the government structure, Budget, and public service have been built around the current model that tweaks can only generate marginal benefits. Real change requires comprehensive reform, which is difficult, expensive work.
The ACT’s fiscal position is core to the problem. The ACT has accumulated so much debt in the last decade that interest now accounts for one-tenth of all government spending. Any additional debt is unaffordable but there’s little opportunity to raise more revenue or cut spending elsewhere, so there’s no way to meet the cost of reform.
Any new spending initiative — even something that would be beneficial for the Budget and the community in the long term — is essentially off the table. We simply don’t have the money.
Stamp duty is an instructive example. Labor pledged to abolish stamp duty as part of its tax reform package in 2012, in exchange for a new rates system.[2] The abolition hasn’t happened and is increasingly unlikely to ever happen. We simply cannot afford to give up the $200 million in revenue stamp duty generates — just as we cannot afford any other tax reforms that might hurt revenue.
Another example is Public Service capability. A new economic model necessarily means fewer people in some areas and more in other areas. It could mean fewer levels in the ACTPS hierarchy[3] or changing the number of agencies or divisions within them. Even if this meant no job cuts and could be implemented for free (and it certainly cannot), the evolution of ACT Government enterprise agreements means that changes are slow and difficult, and there’s no guarantee of success.
This is why it is so difficult for us to escape scarcity. Our current economic model is unsustainable but moving to an alternative is unaffordable.
It’s like having a job that is making you increasingly miserable but your other option requires you to take a significant pay cut. On any given day, it makes sense to put off the difficult decision for another time. That’s exactly what the ACT has been doing for the last decade.
But we are on a trajectory where things will only get worse until we accept it’s time to do the difficult but necessary thing, and make a change.
Conclusion
Our broken economic model is producing scarcity, and institutional failures have prevented us from changing course. And so Canberrans are not flourishing or enjoying the quality of life they deserve.
We are in a real pickle. There’s no easy way out of this – but there is a way, which we will explore in our next essay.
[1] According to the ABS, the ACT population has grown by 74,000 people but only 43,000 dwellings in the last decade. Since COVID, population growth has continued while the number of new dwellings being built is in freefall.
[2] The reform vision was to gradually replace the ACT’s inefficient and inconsistent taxes with efficient, consistent alternatives, like pivoting from stamp duty to rates. This can yield substantial economic benefits — but it does require the whole package to be implemented.
[3] Curiously, the ACTPS hierarchy has two extra layers than the APS hierarchy (an extra SES and EL/SOG), despite the ACTPS being one-tenth the size.