Mookhey’s latest budget is sensible and sober. It also happens to be his most interesting

Treasurer Daniel Mookhey’s third state budget is a sensible, sober and steady-as-she-goes affair. But it also happens to be his most interesting.

With his first two economic statements largely focused on implementing Labor’s election promises and dealing with an inflation crisis, Mookhey has used this latest budget to give NSW a glimpse of what a “new normal” might look like as COVID-era spending subsides and the state’s infrastructure rollout enters a new phase.

NSW Treasurer Daniel Mookhey and Finance Minister Courtney Houssos on Tuesday.Credit: Dominic Lorrimer

This is not – to Mookhey’s credit – a big-spending budget. He has resisted any temptation to deliver a new cost-of-living relief package, and has curbed the enthusiasm of ministers who have left cabinet’s expenditure review committee over recent months empty-handed. It won’t win him friends in Labor or deliver eye-catching headlines, but it is the right course to chart for the time being.

Some will view the budget as unimaginative and lacking boldness. There may be some justification to that. But the times warrant a focus on spending restraint and budget repair, particularly around debt.

Gross debt is projected to be $178.8 billion next financial year – $9.4 billion lower than previously forecast. Mookhey points out this will save the state about $400 million in annual interest expenses. Debt as a percentage of the economy will hover at about 20 per cent as growth levels off, which will put NSW in a much better position than most Australian states.

Average spending in NSW is forecast to grow by 2.4 per cent a year for the next five years, which if achieved (a very big if) would be the definition of a government living within its means. But growth in the public sector wages bill will hit a more concerning 3.7 per cent, reflecting recent pay deals. With employee expenses accounting for about 40 per cent of the state budget, caution will be needed over coming years to ensure the 3.7 per cent growth rate does not increase. Higher pay claims will already cost taxpayers an extra $2 billion over the next four years.

The government claims it is on track to achieve a surplus by the 2027-28 financial year. It’s good to see Labor aspire to a surplus, but the forecast should be taken with a grain of salt given global uncertainty.

The big question is whether the discipline Mookhey and Finance Minister Courtney Houssos have shown in this budget on debt and spending lasts. Next year’s budget will be handed down less than a year out from the March 2027 poll, and Labor will be keen to flick the switch to showering the electorate with nice surprises. It would be a shame to see the sober fiscal architecture outlined in this year’s budget jettisoned for political expediency next year. Asked about this on Tuesday, Mookhey laughed and said: “Let me deliver this budget before I talk to you about the next one”.

Mookhey has given us a glimpse on Tuesday of his fiscal credentials. But the Herald can’t help but get the sense that he and Michael Coutts-Trotter, the state’s astute Treasury secretary, must be itching to do more.

That doesn’t necessarily need to cost lots of money. The government has an opportunity to demonstrate a vision for the state that should include tax reform. With the budget in better condition by the economy remaining flat, now is the time to be brave.

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