When sales began dipping last year at Hou Leong’s antique furniture store in Australia’s capital, Canberra, he suspected the reason why. Tony Abbott was about to become prime minister.
“People knew the government was going to change hands and became more nervous about spending money,” said Leong, 50, bracing against the winter chill at his Silk Road Gallery, five minutes drive from Parliament House. Revenue at the store has since halved, he said, as Abbott’s pledge to cut the size of the nation’s public service, 40 percent of which lives in Canberra, threatens confidence and growth.
Vowing smaller government, Abbott is slashing spending in a bid to tackle a budget deficit estimated to have swollen to A$49.9 billion ($46.2 billion) in the year to June. The “bush capital” of 380,000 people, nestled between forested mountains and farmland 290 kilometers southwest of Sydney, will bear the brunt of the government’s fiscal tightening and faces a repeat of the recession triggered there almost two decades ago when Abbott’s conservative mentor, John Howard, axed jobs, according to economist Richard Denniss.
“Canberra has become a metaphor for wasteful government activity for a lot of Australians and particularly for conservatives, so promising to cut jobs there is seen as a political winner,” said Denniss, executive director of the Australia Institute. “What that means in effect is Abbott is promising to devastate a regional economy.”
The Australian Capital Territory, where Canberra lies, was the worst-performing of the nation’s eight states and territories in the first quarter, with final demand contracting 1.4 percent from a year earlier. Seasonally adjusted retail sales in the ACT fell 0.5 percent in June from the previous month -- the nation’s only decline -- and were down 2.3 percent from a year earlier.
“You can see how slow it is in here,” said Paul Loiterton, 30, pointing to his three customers in the Daily Grind café in Barton, a Canberra suburb that is home to the foreign affairs department and prime minister’s department. “There’s been too much competition in the hospitality industry for a couple of years. So when the public service is under pressure like it is now, it has massive knock-on effects.”
Canberra was born in the early 1900s when rolling sheep paddocks at the foot of the Australian Alps were selected as the site of the capital, as a compromise to those arguing for either Sydney or Melbourne.
American architect Walter Burley Griffin and his wife, Marion Mahony Griffin, who had worked for Frank Lloyd Wright in Chicago, won an international competition to design the new city and it was named Canberra in 1913.
The city has been the subject of jibes from the outset due to its remote location and planned design, and has been variously labeled a cemetery with lights and a good sheep station spoiled.
Criticism that the capital is little more than a sterile home for national monuments and public servants is unjustified, according to Paul Daley, author of “Canberra.” He points to Organisation for Economic Co-operation and Development data that ranks the territory first in Australia for education, income, jobs and health.
Abbott’s cuts are likely to be as devastating as those of his Liberal-National coalition predecessor Howard in 1996, Daley said.
“The stimulus that will be taken out of the economy will be massive,” he said in a phone interview. “There is a growing diversity in the economy but the city still largely exists to provide government and public service. If these cuts are implemented the jobs will be affected quite dramatically and that will trickle down through other industries.”
After Howard’s coalition won office in 1996, he axed about 30,000 public service jobs, forcing thousands of workers to leave Canberra, according to Denniss. During the resulting recession, unemployment rose to 8.5 percent, bankruptcies increased and property prices slumped, bucking the national trend.
Abbott’s coalition, which won office almost a year ago, has pledged to cut 16,500 jobs from the 164,000-strong public service.
Delivering his annual budget on May 13, Federal Treasurer Joe Hockey told parliament that more than 70 government agencies would be either abolished, merged or privatized.
“A smaller, less interfering government won’t need as many public servants,” he told lawmakers. Hockey and the Australian Public Service Commission haven’t specified how many of the cuts will come out of Canberra.
The territory’s unemployment rate, which historically beats the national average, climbed to 3.9 percent in July, the highest this year, compared with 6.4 percent nationally.
Nevertheless, the prospect of Abbott’s cuts is being felt across the territory, where the federal government is responsible for about half of all economic activity, according to ACT Treasurer Andrew Barr.
“When they signal contraction, it does flow through our accounts and impacts on confidence levels,” said Barr, who forecasts as much as A$1 billion a year will be taken out of the territory’s A$52 billion economy due to the public service cuts.
Home prices in Canberra rose 2.2 percent in the three months through June from a year earlier, the slowest growth of Australia’s eight state and territory capitals that had a combined average increase of 10.1 percent in the period, the statistics bureau said yesterday.
Workers’ wages in Canberra and the island state of Tasmania grew at the equal slowest pace in the three months through June, increasing 2.3 percent from a year earlier, according to data released today by the bureau of statistics
Engineering construction remains subdued in the ACT and “commercial activity may slide further over 2014,” according to a Deloitte Access Economics report on the June quarter. The territory had a “stark” engineering pipeline that was the smallest in relative terms of any of the nation’s eight regions, it said.
Commonwealth Bank of Australia rated the ACT the nation’s third-worst performing economy in a July report.
“Weak confidence is constraining retail and business spending and future economic performance,” Craig James, a senior economist at a unit of the bank, said in the report.
The specter of a downturn has prompted Leong to trim costs at his gallery in the suburb of Kingston and stop importing more expensive antique pieces from China.
“It’s quite tough for many people here,” Leong said. “I can probably hold on for another two years like this -- after that I may have to find other plans.”
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