NSW budget faces ‘severe challenges’ as economy slows and interest rate repayments soar
New South Wales’ state budget faces “severe challenges” as the economy slows and rising interest rates mean that debt repayments consume almost one-sixth of government revenues within three years, the treasurer, Daniel Mookhey, said in a special economic statement.
Mookhey’s statement, made to parliament on Tuesday, sought to highlight the budget challenges inherited by the Minns Labor government, including an extra $33bn in spending commitments made by the previous Coalition government in its final 14 months in office. These include already disclosed $7.1bn in “financial pressures”.
“There are serious decisions ahead and there are tough choices to be made,” Mookhey told journalists ahead of his speech.
Of particular urgency was reining in debt as the rising cost of borrowing would mean the budget would be forking out $7bn annually in three years’ time.
“This is billions more than we spend to fund the entire NSW police force,” Mookhey said. “It is equal to 16 cents out of every dollar the state collects in taxes directly” and meant less could be spent on vital public services such as schools and hospitals.
But Mookhey said the government would wait until after the winter recess before deciding whether to proceed with the Perrottet government’s plan to increase the sales tax on the Star casino group by as much as $300m.
“We obviously want to make sure that we’re minimising the impact that any changes we make have on people’s jobs,” he told reporters. “We want to be mindful of the fact that there are 1000s of people employed in these businesses.”
NSW accounts for about a third of the Australian economy and its state budget was on track to exceed $103bn in the 2022-23 year, according to the mid-year update.
The predicted return to a surplus by 2024-25 will be postponed after Mookhey said on Monday that it would exclude proposed revenue from a debt retirement fund because it distorted the true state of the 2023-24 budget, which will be finalised in September.
The opposition has rejected Mookhey’s criticism, saying it was intended
to make the previous government look bad and also to discourage public sector workers from pressing too hard for pay increases.
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The opposition leader, Mark Speakman, said the government was looking for a “pretext to break election promises” at the September budget.
“They are looking for excuse after excuse to cut services, to cut infrastructure programs, apparently to fund public sector wage increases,” he said.
Opposition treasury spokesperson, Damien Tudehope, said the treasurer should be working to maintain the state’s top credit rating that it maintains with Fitch and Moody’s rating agencies.
S&P has NSW at one notch lower but with a “stable” outlook.
“When the previous government left office, we had a triple-A credit rating,” Tudehope said. “We had a pathway to a surplus, we had an infrastructure pipeline … All those things have now been flagged by the treasurer as things which are under threat.”
Another adjustment in the September budget would take into account a revision of the value of the government’s assets that would lift their worth by $30bn. As a result of the revision, depreciation costs would also increase by hundreds of millions of dollars annually.
Despite the state’s ongoing fiscal headwinds, NSW’s economy remains relatively robust with per-capita income likely to expand even as the national gauge is projected to go into retreat in the 2023-24 year. The jobless rate is at 3%, the lowest in half a century, and well below the 3.6% national average in May.
Mookhey also reiterated concerns that a slate of mega-projects needed “big bailouts”.
Finishing Sydney Metro City and Southwest will cost at least $20.5bn – $9bn more than the original sticker price [and] $2bn more than we were last told,” he told parliament. “And it is years behind schedule too”.
“Sydney Metro West will cost more than $25bn; $12bn higher than the original forecast,” he said. Similarly, the Western Harbour Tunnel was now likely to cost $7.4bn, compared with an early costing of $6.7bn, even though the contract had only been signed last December.