The ACT economy has rebounded strongly following on from COVID-19 lockdowns and restrictions, with a better-than expected budget bottom line driven by increased household spending.
But as ACT Chief Minister and Treasurer Andrew Barr handed down his 11th territory budget on Tuesday, he signalled national factors such as rising inflation and interest rates are expected to bring future challenges.
The budget deficit for 2021/22 was $580.4 million, $371.1 million lower than what was forecast in last year's budget, and was also $189.8 million lower than the budget review handed down in March.
The territory's finances are still expected to be in the red over the forward estimates, but the deficit is expected to shrink each financial year going forward.
The 2022/23 budget estimates a $483 million deficit, before reducing to $229.4 million by 2025/26.
It has forecast the territory's economy will grow by three per cent in the current financial year, but down from the 3.25 per cent previously forecast for the period.
Despite the disruption to the economy following Canberra's lockdown due to the Delta variant of COVID-19, the territory's budget had "outperformed expectations".
The budget papers said support for the public sector had offset significant declines in private sector activity following the lockdowns.
A rebound in household consumption and business investment during the second half of the financial year had contributed to the territory's economic recovery.
While the budget had performed better than expected, there were warnings of economic difficulties on the horizon driven by national and international factors.
"We face economic challenges, particularly in the short term, with a softening of the national economic outlook as business and consumer confidence is impacted by the current spike in inflation and the lifting of the cash rate by the Reserve Bank of Australia," the budget papers said.
"There is the ongoing and uncertain nature of the pandemic and the continuing shocks of geopolitical developments."
The budget also showed a heightened focus on future infrastructure, coming off the back of higher-than-expected population growth.
The recent census revealed there were 22,000 more Canberrans than previously thought.
Population growth is expected to return to its long-term average growth rate of two per cent by 2024/25, after low growth figures during the height of the pandemic.
Budget papers also show the revenue from stamp duty will fall to 10 per cent by the end of the forward estimates period in 2025/26, down from 26 per cent a decade ago, as the government switches to a rates-based system.
The budget outlined $390 million for public health services, which includes almost $60 million for the response to COVID-19.
The ACT government is also planning to improve housing affordability and supply in Canberra, with 30,000 dwellings expected to be built during the next five years.
This will increase the total housing supply from around 180,000 dwellings to 210,000.