We were told the state’s finances were a wreck. The budget papers show something very different

Since Daniel Mookhey became treasurer last year he’s made a lot of the “severe challenges” facing the state’s finances.

The gloomy tone intensified recently after NSW was hit by an unexpected cut in its share of the GST, which is forecast to cost the state billions in coming years.

NSW Treasurer Daniel Mookhey delivers the budget.Credit: AAP

But things weren’t so bad when Mookhey unveiled his second budget on Tuesday.

In the coming financial year state revenue will reach a record $122 billion – $2 billion more than forecast only six months ago.

And over the next four years the government will have nearly $11 billion more to spend than expected last December.

Mookhey can thank the property market for much of the budget windfall; increases in forecast transfer duty (which includes stamp duty on residential property) and land tax have driven the big revenue upgrade.

In an interesting parallel, the state will collect an extra $4.1 billion in transfer duty over the next four years than previously forecast – much of it from the sale of multimillion-dollar residences – and spend $5.1 billion on social housing.

The NSW government now expects to collect more than $53 billion in transfer duty on property sales between now and June 2028.

Despite better-than-expected revenue, the NSW budget is forecast to be in deficit over the next four years; Mookhey blames this on a federal government’s cut to NSW’s GST share which will cost the budget $11.9 billion over the period, according to NSW Treasury estimates.

He claims the state would have “cumulative surpluses” worth nearly $2 billion over the next four years if not for the latest GST carve-up.

The state’s net debt, which was negligible before the pandemic, will continue to rise over the next four years, although the future debt trajectory is broadly in line with previous forecasts.

In a major change to the financial management in NSW, the government will pool several of the state’s investment funds – including the Coalition-era NSW Generations Fund – to create a new entity called OneFund worth $46.7 billion.

“OneFund will result in a more efficient and diversified investment portfolio, with improved risk-adjusted returns over the long-term,” the budget says.

Mookhey says this restructure of money management policies will generate an additional $1.6 billion in returns without having to take on additional borrowings.

Elsewhere, the budget forecasts the state’s unemployment rate – now 3.8 per cent – to edge up to 4.5 per cent next financial year.

But the NSW economy will gain momentum in the year as household cost of living pressures begin to ease.

“As inflation continues to move gradually lower against the backdrop of weak growth in demand, conditions are expected to be in place to allow the RBA to start lowering interest rates in the first half of 2025,” the budget papers say.

The NSW economic growth rate slowed to 1.5 per cent this financial year, but that is forecast to accelerate to 2 per cent in 2024-25 – well above the 1.25 per cent forecast last December.

Since becoming treasurer Mookhey has cited a raft of financial obstacles to justify the state’s long run of deficit budgets. But as the economy picks up, as predicted, that excuse will begin to wear thin.

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