NSW Budget 2025-26: Treasurer ‘cautious’ for return to surplus amid global threats, disasters

NSW Treasurer Daniel Mookhey remains “cautious” about his projected surplus, warning global tensions could throw his numbers into disarray.

NSW Treasurer Daniel Mookhey has warned that global tensions – such as the outbreak of war in the Middle East – could affect the 2025-26 budget. Picture: Amir Levy/Getty Images

NSW Treasurer Daniel Mookhey remains “cautious” about his projected surplus, warning global tensions – including the outbreak of war in the Middle East – could throw his numbers into disarray.

The NSW budget is expected to be in deficit by $5.7 billion in the current financial year, followed by an improved $3.4 billion deficit in 2025-26.

Despite the outlook worsening since his half-yearly review, the Treasurer now anticipates the state’s operating position to be out of the red by 2027-28, projected two consecutive $1.1 billion surpluses in his forward estimates.

However, Mr Mookhey urged a “cautious” interpretation of the forward estimates due to increasing costs associated with more frequent and more damaging natural disasters, as well as a $3.4 billion increase in insurance expenses over the next five years.

The budget papers also did not take into account the breakout of the Israel-Iran war, and any potential domestic impacts of global events.

“There’s a lot of volatility right now … particularly when it comes to trade and other issues, but it is encouraging that we are showing a path back to surplus,” the Treasurer said.

Gross debt will remain much higher, predicted to reach $178.8 billion by June 2026. However the latest debt forecast is a $9.4 billion improvement on the 2023 pre-election budget update, and now underpin the government’s better overall position.

Treasurer Daniel Mookhey and Finance Minister Courtney Houssos. Picture: Rohan Kelly

Contributing significantly to the budget’s return to surplus – for the first time since 2018, if it materialises – is a slowing down of growth in annual expenses, from a height of 25 per cent annual growth in 2021-22, to 2.4 per cent on average over the five years.

Finance Minister Courtney Houssos said her government’s “prudent” fiscal management has allowed NSW to be one of the best-performing jurisdictions in terms of low expenses growth, next to Tasmania.

“We are leading the nation in terms of being careful about how we are spending taxpayers’ money,” she said.

If a budget surplus is achieved in 2027, it would be the first surplus since then-NSW Treasurer Dominic Perrottet delivered a surplus in 2018. Picture: AAP Image/Dean Lewin

Budget papers also cite $450 million in savings in the 2023-24 financial year alone, on what the Treasurer describes as “shadow workforces” in the form of external consultants and contractors.

Real wages are expected to grow in line with productivity, forecast at 0.8 per cent in the five years to June 2029.