The $167 billion debt that shows why rail workers should make a deal

The industrial standoff creating chaos on Sydney’s trains is taking place with the NSW budget deep in the red.

The state has been in deficit for the past five years – and the red ink is forecast to continue for at least four more.

NSW has not had such a long run of deficit budgets for many decades.

Premier Chris Minns is seeking the intervention of the federal workplace umpire to halt industrial chaos on Sydney’s rail networkCredit: Photo: Steven Siewert

The sustained pressure on finances is a major constraint on the Minns government as it grapples with a long-running campaign by rail unions for higher pay.

On Thursday, the government launched a legal bid to end industrial action which threw the state’s rail network into disarray on Wednesday and Thursday.

Because state governments are responsible for labour-intensive social services, such as health, education and transport, wages are by far its biggest expense. That means public sector wage settings have a huge influence on the state’s bottom line.

This year the NSW government expects to spend more than $48 billion paying employees, plus it will outlay $6 billion on superannuation.

Managing that enormous expense is a key challenge for any state government: pay public servants too little and state agencies struggle to attract and retain appropriately skilled staff, leading to deteriorating quality; pay too much and the state’s overstretched finances come under even more strain.

When Labor won office in 2023 it promised to lift public sector wages which were lagging inflation. It scrapped a public sector wages cap imposed by the previous Coalition government in favour of negotiated pay agreements.

In November, the Herald revealed the Minns government will spend $6.6 billion more paying public servants over five years to June 2028 than would have been the case had the Coalition’s controversial wages cap remained.

However, that figure only covers multi-year pay deals reached with about two-thirds of the state’s 400,000 employees; some major pay agreements are unresolved, including the one with the rail unions.

Earlier this week the Minns government lifted its pay offer to rail workers to offer a 13 per cent increase over four years, as well as a 1 per cent increase from savings from the merger of Sydney Trains and regional operator NSW Trains, and 1 per cent from legislated super increases.

That compares favourably with some recent state government pay agreements but is much lower than the combined rail unions’ demand for a 32 per cent increase over four years.

The government claims that would leave its annual wages bill $720 million higher by the fourth year.

Adding to the complexity of NSW wages policy is the size and diversity of the workforce.

If the government gives into the demands of rail unions, other state employees will, understandably, aspire to comparable pay increases which, in turn, will load even more pressure on state finances.

Opposition industrial relations spokesman Damien Tudehope said if the government “caves to the bullies from the RTBU while continuing to ignore nurses” a third-year train driver in NSW will be earning about $20,000 more per year than a third-year registered nurse by 2027.

Another consideration is the rapid growth in state debt. The string of budget deficits coupled with borrowing to pay for the state’s ambitious infrastructure program means NSW gross debt will hit $167 billion this financial year – four times more than before COVID-19.

While Treasurer Daniel Mookhey has taken steps to curb the rate at which borrowing is rising, gross debt is still forecast to reach $200 billion by mid-2028. That’s equivalent to 20.5 per cent of the state’s annual economic output – a higher share than any time in the past 30 years.

Meanwhile, the state’s interest bill is mounting. The NSW government will fork out $5 billion servicing debt this financial year and that is set to reach about $9 billion in three years.

Rising debt and sustained deficits have triggered warnings of a downgrade in NSW’s international credit rating which could push the state’s borrowing costs even higher.

NSW already faces years of budget repair. Granting generous public sector pay increases will only make that task more difficult.

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