Trump is the ‘biggest threat’ to NSW economy and jobs, treasurer warns

NSW Treasurer Daniel Mookhey has warned the biggest threat to the state’s economy in coming years is the re-election of Donald Trump as US president because of the way his policies would disrupt international trade.

As Mookhey prepares to hand down his second budget on Tuesday, the treasurer said NSW would not be immune should Trump win the November election and follow through on a campaign pledge to slap a 10 per cent tariff on all US imports and even bigger duties for some nations.

NSW Treasurer Daniel Mookhey warns the trade policies of a second Trump presidency would “have a huge effect”.Credit: Wolter Peeters

“If we were to find the wild gyrations in the world’s trading system that Mr Trump is campaigning to impose, that would obviously have a huge effect on Australia and NSW,” Mookhey said in a pre-budget interview.

“I’m not going to weigh in on US politics, but if you’re asking me, what is the biggest threat? Well, we obviously have to keep an eye on that”.

More immediate challenges mean new spending will be restrained in Tuesday’s budget, with Mookhey warning recent changes to the GST had “complicated the state’s finances”. He says NSW will be $11.9 billion worse off over the next four years due to a Commonwealth Grants Commission decision to reduce the state’s GST share.

Mookhey indicated that housing would be a centrepiece of the budget, stressing that “resolving the housing crisis is a key mission of the government”. NSW needs to build 75,000 new homes a year for the next five years to reach its ambitious targets under the National Housing Accord.

Donald Trump has flagged higher US tariffs if he is elected president in November.Credit: Bloomberg

“The decisions we make now can make a big difference to ensuring that our kids have a place to call their own, and so the budget will be demonstrating the next step the government will be taking to ensure that we are building homes for our kids to live in, neighbourhoods people love while we are also supporting those neighbourhoods through change,” Mookhey said.

In a bid to make more homes available to NSW residents, the budget will lift a stamp duty surcharge paid by foreigners purchasing a home from 8 to 9 per cent from mid-2025. A foreign-owner land tax surcharge will also increase, from 4 to 5 per cent. There are an estimated 20,000 foreign-owned residential properties in NSW, around 0.6 per cent of the stock of dwellings.

The budget will confirm a run of five consecutive deficits for NSW since 2019–20 is set to continue next financial year, but Mookhey said there would be “no general round of cuts” to bolster the bottom line.

Many economists share Mookhey’s concerns about how changes to US trade policy will affect the global economy should Trump return as president.

During his first term, Trump’s policies caused damaging trade conflicts between the US and other countries, especially China, that roiled financial markets and cast a shadow over the international rules-based trading system built up over decades.

The presumptive Republican nominee has flagged tighter trade restrictions should he be elected again, including a 10 per cent tariff on all imports from all countries as well as a tax of as much as 60 per cent on imports from China. If implemented, those policies would likely trigger a fresh round of trade wars, disrupt international commerce and curtail global growth.

Mookhey warned that NSW is now at an “inflection point” where the problem of high inflation is beginning to recede following a spate of interest rate increases in 2022 and 2023. Instead, the state faces a period of very low growth.

“The RBA has succeeded in doing what it wanted to do, which is to slow down economic growth in the nation to allow for inflationary pressures to dissipate,” Mookhey said.

“That means that the balance of risk, I think, is shifting now from high inflation to low growth to no growth. That means the budget has to be prepared to support the economy in scenarios where it’s entirely foreseeable that inflation lingers for longer, but it’s equally foreseeable that we find ourselves with very low levels of economic growth.”

He said the government was preparing for both those scenarios.

Jobs figures released on Thursday showed unemployment in NSW fell to 3.8 per cent in May, from 4 per cent in April. Even so, the state’s unemployment rate has been trending higher since last year and is forecast to reach 4.5 per cent next financial year.

A survey published by peak body Business NSW last month showed business confidence falling ahead of the budget as firms contend with elevated costs, higher interest rates and lingering weakness in consumer spending. It found one in five businesses across the state planned to cut staff in the coming three months.

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