NSW Budget: Treasurer Daniel Mookhey reveals cuts and cash grabs to slow state debt growth

By slashing funds for dams, highways and high-speed rail — along with consultants — Daniel Mookhey says he can curb growth in state net debt to $108 billion instead of $118bn.

The speed at which state debt grows will be slowed by stopping plans for fast rail, better roads and dam building, plus increasing coal taxes and spending less on consultants.

These cuts and cash grabs will somewhat limit borrowings – and thereby deliver a secondary benefit of lower interest costs – with the combined effect of reducing the pace at which NSW sinks into the red by more than $10 billion over four years.

The budget suggests that net debt will be about $108bn in 2025-26, compared to an estimated $118bn in the pre-election update.

About $1.8bn of the savings come from taking out money earmarked towards a highway under the Blue Mountains.

A further $150 million will be trousered by abandoning work on plans for fast rail from Sydney to Canberra, Newcastle and elsewhere.

Mr Mookhey and Labor colleagues after delivering the budget Picture: NCA NewsWire

There’s a $50m benefit to the bottom line from clawing back initial funds for raising the Warragamba and Wyangala dam walls, along with not building the Dungowan dam.

A change to the accounting treatment of rail asset spending will net a further $4.3bn.

Water pours out Wyangala Dam in 2022. Picture: NCA NewsWire

Increased coal royalties will bring in $2.7bn, and there’s a near $540m fillip from using fewer consultants.

By borrowing less, Treasurer Daniel Mookhey estimates the state can save $2.3 billion on its ballooning interest bills over four years.

Mr Mookhey said the cost of interest was the single biggest source of pressure on the budget.

That’s because there has been a ten-fold increase in the coupon payable on state government bonds since 2021, from barely 0.4 per cent to 4.2 per cent.

In 2026-27, at the end of the budget projections, gross debt is expected to reach $187bn.

“That number was going to have a two in front of it – $200bn-plus” in that year, without intervention, Mr Mookhey said, although he could not nominate when the peak would be.

The budget forecasts a deficit of $7.1bn this financial year, which is slightly wider than anticipated in pre-election projections. A surplus of $844m is anticipated in 2024-25, which would be a marginal improvement if delivered.

A stronger-than-expected property market is lifting transfer duty revenue. Higher wage growth is adding to the payroll tax take. But the cost of living crunch that is reducing consumer spending has eaten into GST revenue.

Shadow Treasurer Damien Tudehope said the budget was “dodgy”. Picture: NCA NewsWire

In fact, without the current rapid growth in population, NSW would be in a recession.

“On a per-capita basis, we have declined,” Mr Mookhey told The Daily Telegraph in the lockup. He said that was “100 per cent consistent” with what was happening at a Commonwealth level.

Shadow Treasurer Damien Tudehope said predictions of a budget surplus were “entirely dodgy”.

Mr Tudehope said the government had not allowed anywhere near enough for future public sector wage rises.

He said the budget was predicated on an increase of just 2.1 per cent in 2026-27, which was “not credible.”