Call her Mei. In 2022, she and her partner — both federal public servants in their thirties — bought a block of land in Whitlam, one of the new suburbs rising in Canberra's Molonglo Valley, partly on the strength of the government's own promise that light rail would eventually reach the growth corridors to the capital's west and south. Four years on, the family has moved into their finished house; the tram has not arrived, and will not for years yet. What has arrived every year without fail is the general rates notice, which has climbed steadily as the territory leans harder on property owners to help fund a budget that, on the government's own figures, has not balanced since 2022. Mei is a composite, not a named resident, but her experience matches a real and measurable pattern: a small government building big infrastructure on a revenue base of under half a million people, borrowing to close the gap, and asking the same ratepayers still waiting on the promised services to carry more of the bill in the meantime.
That bet now carries a specific price tag. Under the ACT's 2026-27 Budget, handed down on 10 June 2026 by Treasurer Chris Steel, net debt is forecast to reach $12.5 billion this financial year — 18.4% of the territory's gross state product — climbing to a forecast $14.1 billion by 2029-30, with an annual interest bill of around $1.2 billion (ACT Treasury, 2026-27 Budget Outlook, 10-Jun-2026). Twice in two years, S&P Global Ratings has stripped the territory of a credit-rating rung it had held for decades: first from AAA to AA+ in September 2023, then from AA+ to AA in September 2025 — the second downgrade citing an operating account expected to stay in deficit until at least 2027 and a debt burden, relative to revenue, now higher than every other rated Australian state or territory except Victoria (S&P Global Ratings, research updates, 8-Sep-2023 and 5-Sep-2025).
What the government did
Andrew Barr has led the ACT government as Chief Minister since December 2014, and was Treasurer from 2011 to 2024, making him by mid-2026 the longest-serving Chief Minister since the territory won self-government in 1989. After the October 2024 election he handed the Treasury portfolio to Chris Steel, but the fiscal strategy Steel now manages is substantially the one Barr built over more than a decade. Its centrepiece is light rail. Stage 1, from Gungahlin to the city, opened in April 2019 after a design-and-construction contract budgeted at $707 million and ultimately delivered for about $675 million (Chief Minister, Treasury and Economic Development Directorate, media release, 2019). Stage 2A, extending the line from the city to Commonwealth Park, is under construction under a $577 million contract signed in December 2023 and split roughly evenly with the Commonwealth, with services due to begin in 2028 (ACT Government, Built for CBR; Canberra Daily, 2025). Stage 2B, the more complex and costly leg across the lake to Woden, remains in planning; the government has not published an official cost for that stage, though the Canberra Liberals opposition puts the combined bill for both remaining stages above $4 billion (approx.) (Canberra Times, 2024).
Alongside light rail, the government has pursued a genuinely long-horizon tax reform. Since 2012, following a review led by former ACT Treasurer Ted Quinlan, the territory has been phasing out stamp duty on property transfers over 20 years, intending to retire it entirely by 2032, and replacing the lost revenue with higher general rates — a broad-based charge on land value. Insurance duty was abolished on the same schedule from 1 July 2016 (ACT Treasury/Revenue Office, Tax Reform program). That reform has run alongside sustained capital spending on health and housing as the population has grown toward an estimated 447,000 by mid-2026 (ACT Treasury, Estimated Resident Population, December Quarter 2025), spending that in the 2026-27 Budget includes a new Northside Hospital and continues to absorb the costs of the government's 2023 acquisition of Calvary Public Hospital, which the Auditor-General has flagged as an ongoing financial-sustainability issue in its own right (ACT Auditor-General, Report No. 12 of 2024).
The strongest case
A small government building for a growing capital, on a genuinely fairer tax base
A fair reading of the record starts with what the government got right. The stamp-duty-to-rates transition is the reform most tax economists say every state should attempt and almost none has had the discipline to finish; stamp duty discourages people from moving house or changing jobs, while a broad land tax is stable and hard to avoid, and independent commentators have repeatedly held the ACT up as the national example of how to do it (The Conversation, 2018). Light rail Stage 1 was also delivered under its contracted design-and-construction budget, at roughly $675 million against a $707 million contract — a genuinely rare outcome for an Australian rail project, whatever view is taken of the line's underlying value for money. The ACT is also a different kind of government from a state: it performs both state-type and local-government functions on a revenue base of under half a million people, with no separate councils to share the load, and close to a third of its jobs sit in public administration (32.7%, ABS Labour Force data), leaving it more exposed than any state to Commonwealth staffing decisions it does not control. Building a light-rail network, a new hospital and growth-suburb infrastructure for a city adding thousands of residents a year, while simultaneously giving up a major transaction tax, was always going to require either heavier borrowing or a slower rate of growth. The government chose to borrow, and it borrowed chiefly to build assets — a hospital, a rail line, new suburbs — rather than to fund recurrent spending.
The evidence
Measured over time, the shift in the territory's own numbers is stark. In December 2020, mid-pandemic, ACT Treasury forecast net debt would reach $4.7 billion by June 2020 — 11.1% of gross state product (ACT Government fiscal update, reported Dec-2020). By the 2026-27 Budget, net debt stood at $12.5 billion, or 18.4% of gross state product, on its way to a forecast $14.1 billion by 2029-30 (ACT Treasury, 2026-27 Budget Outlook, 10-Jun-2026). The government's own new fiscal rule, adopted in this same Budget after years of criticism that it had no numerical target at all, caps net debt at 19% of gross state product "over time" — meaning the territory is now budgeting to sit within a single percentage point of a ceiling it has only just invented.
The operating side of the ledger shows the same pattern of repeated slippage. The territory recorded an operating deficit of just over $1 billion in 2025-26 (approx.), before a 2026-27 Budget deficit of $323.4 million, and the government's own forecast for a return to surplus has moved from 2027-28 to 2028-29 within a single Budget cycle (ACT Budget 2026-27, 10-Jun-2026). S&P counted five consecutive annual operating deficits stretching back to 2022 when it downgraded the territory again in September 2025 (S&P Global Ratings, 5-Sep-2025).
Twice in two years the market told the ACT the same thing an independent parliamentary review later confirmed: the deficit is a policy choice, not bad luck.
A revenue base built for a small government
Part of the pressure is structural, and sits above any one government's control. The Commonwealth Grants Commission assesses the ACT as having above-average capacity to raise its own revenue — high average incomes and commercial property values — and a below-average cost of delivering services, which under the GST-sharing formula means the territory receives less than an equal per-person share of the national pool; the ACT will draw an estimated $2.1 billion of the $103 billion GST pool in 2026-27, and Treasurer Steel has separately pressed the Commonwealth over what he calls a $550 million GST shortfall (Canberra Times, 2026; Commonwealth Grants Commission, GST Revenue Sharing Relativities). At the same time, a meaningful share of the territory's own-source revenue rises and falls with the property cycle: because Canberra land is held on leasehold rather than freehold title, lease variation charges and land sales — payments made when landowners are approved to develop a site more intensively, and receipts from releasing new government land — are a direct territory revenue line, and both move with the property market rather than with the cost of running services. A rates system still mid-way through its 20-year transition, a GST share smaller than an equal per-person split, and a land-revenue base that is inherently cyclical together leave the ACT with less room to absorb a spending overrun than a larger state would have.
The critique
The clearest independent verdict on the government's own choices came not from the government but from the ACT's own Legislative Assembly. In late 2025 the Greens and the Canberra Liberals combined numbers to force the government's hand, establishing a Select Committee on the Fiscal Sustainability of the ACT and commissioning economist Saul Eslake to examine the territory's books independently. That a party still formally inside the Labor-Greens governing arrangement — in the person of Greens leader Shane Rattenbury — voted to establish an inquiry the government did not want is itself evidence of how far concern about the trajectory extends within Canberra's own political class (Canberra Daily, Mar-2026). Eslake's interim report, presented on 27 February 2026, found Canberrans "overtaxed and underserviced by a big-spending ACT government" with "one of the weakest budget positions in the country," and concluded the deterioration was "entirely due to policy decisions" rather than external bad luck (Saul Eslake, Interim Report to the ACT Legislative Assembly Select Committee on the Fiscal Sustainability of the ACT, 27-Feb-2026). His own numbers proved conservative: the $11.05 billion current debt and $13.82 billion by 2028-29 he cited in February were both overtaken within four months by the government's own June Budget figures of $12.5 billion and $14.1 billion respectively.
Eslake dated the shift from structural surplus to structural deficit to the period after Andrew Barr became Treasurer in July 2011, and found that government spending decisions had reduced the ACT's operating balance by more than $6 billion over the past decade — expense decisions alone adding $7.2 billion to cumulative deficits, against new revenue measures that recovered only about $900 million of that. He also found the territory overspent the level implied by the Commonwealth Grants Commission's own assessment of what it needs to spend on services by $739 million, or 6.4%, in 2023-24 alone (Saul Eslake, Interim Report, 27-Feb-2026).
Light rail sits inside that pattern rather than outside it. The ACT's own Auditor-General examined Stage 2A's business case in 2021 and found the government's published capital-cost estimate had understated the true cost by omitting roughly 17% of it — the cost of retrofitting the tram fleet for wire-free running through the parliamentary triangle — and that the blended benefit-cost ratio claimed for the combined Gungahlin-to-Woden project, once wider land-value benefits making up more than half the claimed total were included, was only 1.20 (ACT Auditor-General, Report No. 8 of 2021, Canberra Light Rail Stage 2A: Economic Analysis). No official cost has been published for Stage 2B to Woden at all; in that absence, the only public figures are the opposition's contested estimates, itself a transparency gap given the project is already being built in stages ahead of a confirmed total price. Each stage has been funded predominantly through borrowing rather than the land-sale revenue that financed earlier Canberra infrastructure, which is precisely why the project shows up in the debt figures rather than being absorbed by one-off receipts.
The risk to the future
A debt ceiling the government has already set for itself, and is already close to touching
The 2026-27 Budget's new rule — net debt capped at 19% of gross state product "over time" — is itself a tacit admission of how far the trajectory had run; the territory is already forecast to sit at 18.4% this year, within a single percentage point of a ceiling it has only just invented. If growth slows, if the property market cools and lease-variation and land-sale revenue falls with it, or if the Commonwealth further tightens a GST relativity that already gives the ACT less than a per-capita share, the territory has little headroom left before it breaches its own limit — and S&P has shown twice in two years that it will act on that kind of deterioration rather than wait it out. Because the ACT government also functions as the region's only local government, there is no other tier to absorb a squeeze: an interest bill forecast to average around $1.2 billion a year by the end of the decade will compete directly against the hospital beds, classrooms and light-rail extensions the borrowing was meant to deliver, for a population of under half a million people with no larger jurisdiction to fall back on.