NSW Coalition heads into election campaign with bigger deficit

The NSW government is heading into a tightly contested state election campaign facing a growing deficit and a worsening economic outlook as interest rates rise and global uncertainty remains.

A delayed half-yearly budget update reveals the deficit has increased $102 million to $11.4 billion since June.

“This revision is primarily driven by additional expenditure for COVID response measures, supporting communities impacted by floods, priority reforms and cost of living support, largely offset by upwards revisions to forecast revenue,” the update says.

NSW Treasurer Matt Kean delivered the budget’s half-yearly review on Tuesday.Credit: Louise Kennerley

On the day the Reserve Bank lifted rates for the ninth time since May, the review forecast that the NSW economy will slow sharply next financial year as increases in official interest rates over the past 12 months take a toll.

“The full impact of monetary policy tightening has not yet flowed through to economic activity.”

The budget review warned the global economic landscape was very challenging and that the outlook for the state “remains subject to a high degree of uncertainty and risk”.

Despite this, NSW Treasurer Matt Kean was adamant a re-elected Coalition government would return the budget to surplus in 2024-25.

“Notwithstanding everything that has been thrown at us – unprecedented floods, the additional cost of COVID recovery and rising interest rates – because of our financial discipline we are still projected to return to surplus [in 2023-24] and let me make this commitment: a Coalition government will be ensuring that we deliver a surplus if we are re-elected,” Kean said.

The budget balance for next financial year has deteriorated sharply with the forecast deficit now $6.5 billion, more than double what was expected in June.

The update also highlights “better-than-expected” growth in state revenues – including mining royalties, GST, land tax, payroll tax and motor vehicle tax – which are now forecast to increase by $11.1 billion over the four years to 2025-26.

The state’s infrastructure program has also grown to $116.6 billion over the four years to 2025-26, an increase of $3.9 billion relative to the 2022-23 budget.

New and existing transport infrastructure, including Sydney Metro West, Sydney Metro Western Sydney Airport, Western Harbour Tunnel Upgrade, and transition to zero emission buses, has driven the increase.

Responding to the budget update on Tuesday, Labor’s treasury spokesman Daniel Mookhey said NSW had no chance of returning to surplus and accused the government of relying on “fictional taxes” like the infrastructure contribution reform, which parliament has not legislated.

“This budget update is the last will and testament of a 12-year-old government trying to desperately get back into power by punching the state further into debt,” he said.

Mookhey said the update also made no allocation for raising the Warragamba Dam wall, which the premier has committed to fund, nor for a bailout of the state’s transport asset holding entity.

“It is dubious at best. And it does raise concerns about the state of the books, should there be a change of government,” he said.

“Today’s budget reveals the true cost of Mr Perrottet’s government’s decision to offshore the construction of rail infrastructure. Buried in the fine print is a $3 billion bailout for bungled offshore transport projects.”

Mookhey said it was unfair of the government to link its budget blowout to critical spending on flood support.

“This deterioration in the budget has more to do with blowouts as well as reckless spending being promised by a government that’s desperate to hold on to power.”

The budget update is traditionally released in late December but this year was delayed to February.

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