Trump warning as NSW budget slides $1.3 billion further into red

The NSW budget bottom line has deteriorated by $1.3 billion since June, driven by a near half-a-billion-dollar decline in stamp duty receipts and unanticipated leaps in insurance, compensation and interest expenses.

Treasurer Daniel Mookhey and Finance Minister Courtney Houssos presented the state’s half-yearly review on Wednesday, revealing the budget deficit had worsened to nearly $5 billion in 2024-25, yet was projected to improve to be just $1.3 billion in the red by 2027-28.

Treasurer Daniel Mookhey and Finance Minister Courtney Houssos deliver the budget update on Wednesday.Credit: AAP

The update warned that US President-elect Donald Trump’s expansionary fiscal policy and broad-based tariff regime were expected to heighten global inflationary risks. This would be exacerbated if China responded with similar protectionist measures.

While not disclosing if NSW Treasury had undertaken modelling about the risk of Trump’s trade policies, Mookhey underscored the state’s exposure to tremors in the global economy.

“NSW makes its money from selling the intelligence of its people and its goods around the world. That’s why what happens in trade markets matters a lot to Australia and a lot to NSW,” he said.

In light of the economic headwinds facing the government, Mookhey said the mid-year update was “mildly encouraging”, emphasising the $2.3 billion improvement in the state’s net debt since the budget was handed down on June 18. It was still forecast to leap from $110 billion to $140 billion by mid-2028.

The government underscored a near billion-dollar increase in expenses from insurance and compensation scheme valuations, and a more than $450 million increase in interest expenses. Stamp duty receipts also fell by nearly $400 million as Sydney’s property market cooled over the back end of the year.

A decline in stamp duty receipts has led to a deterioration in the NSW budget. Credit: Nick Moir

Despite consumer spending softening more in NSW than other jurisdictions, the state’s labour market remained resilient, Mookhey said, contributing to nearly $1 billion of extra payroll tax revenue than originally anticipated. He paid tribute to record levels of female participation.

Much of the declines in employment, however, were exclusively driven by male-dominated industries haemorrhaging jobs, especially in manufacturing and construction. This was despite serious labour shortfalls in the building industry being one of the major factors inhibiting housing supply.

Economic growth was “marginally weaker” than anticipated, with public demand continuing to prop up demand in the face of weaker private consumption.

Six months after Mookhey criticised an unexpected redistribution of the GST as causing the state’s budget black hole, stronger-than-expected growth in the goods and services taxation pool nationally meant a $2.5 billion improvement over the next four years.

Sydney Water was issued with a “please explain” from the government after a $440 million tax mishap was identified during preparation for the review. The state-owned corporation had incorrectly brought forward tax payments, meaning it would not be paying the government as much tax as anticipated, Mookhey said.

“I’m deeply disappointed every time we have to report an error like that, and I’m deeply disappointed when people institutions like Sydney Water or Sydney Metro make these types of errors.”

The Coalition accused the government of rolling out the mid-year review “under the cover of darkness”. Opposition Leader Mark Speakman said the budget did not outline how $6.6 billion worth of extra wage claims would be offset.

“There’s talk about wage increases being offset. Nowhere in this half-yearly review is there any identification of a single productivity offset. When the government talks about offsets, it doesn’t claim that those offsets fully match the wage increases, nor does it claim that these offsets are productivity offsets,” he said.

“Offsets is a euphemism for cuts – cuts to services – and that’s what we’ve seen under this government for two years in a row.”

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