It predicted higher unemployment and slower economic growth as the state continues to adjust to recent interest rate increases.
NSW Treasurer Daniel Mookhey delivers his first state budget.AAP
And yet,the budget also forecast a return to surplus next financial year and a solid improvement in the state’s debt position.
Here is the budget explained in five charts.
FROM RED TO BLACK
The disruption of COVID-19 and the devastating floods of 2022 are still affecting the state’s coffers.
The budget will be in deficit by $7.8 billion this financial year,making it the fifth shortfall on the trot.
But a combination of spending cuts,a hike in mining royalties and improvements in some key state revenue sources mean a modest $844 million surplus is now predicted in 2024-25.
Taxation revenue has been revised up by $17.6 billion over the four years to 2026-27 since the last budget update,thanks mainly to improvements in stamp duty,land tax and payroll tax.
ECONOMIC SLOWDOWN
In an unusual twist,the improving budget position comes despite a marked slowdown in the state economy.
The NSW budget forecasts economic output per person to stall over the next two years as higher interest rates take a toll. “This is the weakest result,excluding the pandemic,since the global financial crisis,” it warns.
Unemployment in NSW is expected to reach 4.75 per cent next financial year – far higher than the 2.9 per cent rate registered in June.
The budget warned risks to the economy were now “unusually elevated” and identified three key economic threats.
Firstly,there is a risk high levels of inflation will persist,making further interest rate increases necessary.
Secondly,the economy might prove more susceptible than assumed to the 12 interest rate increases since May 2022. This could further constrain household consumption and business activity.
A third uncertainty is the outlook for the Chinese economy due to ongoing stresses in its property market. A more significant slowdown would,in turn,affect NSW exports.
There are some brighter spots.
Wages growth is forecast to accelerate,and strong population growth due to migration is expected to support housing prices,residential construction activity and business investment. Planned investment in renewable energy is also expected to boost the NSW economy.
WHERE WILL THE MONEY GO?
The NSW government will spend a total of $120 billion this financial year.
The largest expense is health,which includes the state’s public hospitals,and is forecast to cost just over $30 billion this financial year.
Next highest is education,including public schools ($22 billion),followed by servicing and maintaining the state’s transport system,such trains,buses,ferries,light rail and roads ($20 billion).
Since coming to power in March the Minns government has granted its workforce of over 400,000 the biggest public sector pay rise in over a decade.
The budget shows NSW will spend nearly $50 billion on wages and superannuation this financial year.
DEBT STILL RISING
Only four years ago,before the onset of COVID-19,NSW’s net debt was negligible.
But the disruptions of the pandemic coupled with big investments in infrastructure triggered a sharp increase in state borrowings.
Labor’s first budget has slowed the growth in debt.
The budget papers project the state’s gross borrowings to be $173.4 billion by June 2026,which is $14.8 billion lower than the last budget update in March.
“This is NSW’s largest-ever reduction in gross debt – actual or forecast – and it has been achieved
without privatisation,” Mookhey said in his budget speech. “As a result,the state will be saving $2.3 billion in interest payments.”
The state’s net debt – where liabilities are offset against assets – will be $10.5 billion lower in mid-2026 than previously forecast.
Even so,NSW net debt will reach 12.5 per cent of the state’s annual economic output – far higher than at any time in the past three decades.
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