The boom industries NSW must rely on to avoid a grim decade

Treasurer Daniel Mookhey has warned that boosting NSW’s growth this year must be a priority, with a focus on accelerating planning approvals to allow private investment in the booming industries of tech and clean energy, or the state faces a “grim decade” of high inflation and sluggish economic conditions.

NSW is forecast to register the slowest two years of economic expansion in more than three decades as elevated interest rates and cost-of-living pressures sap consumer spending.

“We’re at an inflection point,” Mookhey told the Herald in an interview canvassing the year ahead.

NSW Treasurer Daniel Mookhey says the state must prioritise growth in 2025.Credit: Sam Mooy

“The challenges around a once-in-a-generation inflation crisis are giving way to the need to rebuild household finances but also rebuild economic growth. That is to avoid what I’m calling a grim decade [of] growth-reduced, inflationary misery; that’s the fate we don’t want.”

Mookhey said the state’s big infrastructure spending program would be a key growth driver in the short term. But in the longer term, “revived productivity growth” would be the key.

“In NSW, what does that mean? Ultimately, the best lever that state governments have over productivity growth is land-use planning, which means planning reform becomes a serious job for the year,” Mookhey said.

Mookhey said the state government had identified dozens of private sector investment proposals most likely to boost productivity, and these would be given priority.

“The top 25 projects are overwhelmingly energy and data centres … we need to get these new industries that are making generational-changing investments through our system faster,” he said.

The government is also overhauling planning rules to fast-track residential developments amid a longstanding housing supply crisis.

The nation’s quarterly economic report card released by the Australian Bureau of Statistics on Wednesday drew attention to NSW’s sub-par growth performance.

It showed state final demand, a broad measure of spending, grew by just 1.5 per cent last year, the lowest of any state or territory in 2024.

The government is forecasting the state economy to expand by only 0.75 per cent in the year to June – the worst since 1991 outside the unique disruptions of the COVID-19 crisis – before accelerating to 2.5 per cent growth in 2025-26.

Mookhey expects the state economy to strengthen as inflationary pressures ease.

“As inflation comes down and interest rates normalise towards their neutral level, that then allows a lot of a pent-up demand to flow through the economy,” he said.

Risks ahead

Mookhey last year warned that Donald Trump’s return to the White House was a major threat to the NSW economy, and he remains worried about the effects of higher tariffs on US imports proposed by the Republican president.

The Donald factor: What effect will NSW feel from Trump’s disruptive trade policies?Credit: Bloomberg

“NSW makes its money from selling the intelligence of its people and its goods to the world … that is why open markets are in the interest of NSW, and any person who wishes to close markets, any such policy settings, will have an impact on our outlook,” Mookhey said.

“Open markets are good for NSW, so anyone who wishes to close markets will have impacts on NSW.”

A global trade war triggered by Trump’s policies threatens to stoke global inflationary pressures. Mookhey acknowledged that inflation was “a big swing factor” for the state’s economic outlook. “We are paying close attention to the last mile of bringing inflation down,” he said.

Budget blues

In June last year, the NSW government forecast a deficit of $3.6 billion for this financial year but recently downgraded that to a shortfall of $5 billion.

However, Mookhey says the “broad direction of movement is back towards surplus”.

Last month, international credit ratings agency S&P Global warned that “lax fiscal discipline” by the states and territories meant their credit ratings may be downgraded, which in turn could push up borrowing costs.

Mookhey said the financial position of NSW was comparatively robust.

“There is [a] serious need to differentiate NSW from some of the other states,” he said. “Our expense growth is looking a lot healthier than a lot of other states; I would say our debt is coming down as a proportion of the state economy as well.”

Mookhey said NSW had an excellent reputation with international investors.

“Of those people globally who are looking to invest in state government debt, NSW is seen as the golden investment; it’s the safest, most secure, most reliable, most economically diversified ... among all the Australian states.”

Public sector pay disputes

Another challenge for NSW is the government’s protracted wage negotiations with nurses as well as psychiatrists. The state government has also been caught in a bitter battle with train drivers over their pay claim, which has caused delays – and at times chaos – on Sydney’s rail network.

The treasurer insists that despite ongoing industrial action, the government’s mandate to axe a wages cap and switch to a bargaining system has been effective and affordable.

“The three disputes … obviously are very important, and we are paying close attention to them, but the system is working to resolve them,” Mookhey said.

Sydney commuters have struggled with waves of industrial action in recent months.Credit: Louise Kennerley

“When it comes to psychiatrists, arbitration is beginning. When it comes to the RTBU [Rail, Tram and Bus Union], they are already in the Fair Work system, and when it comes to the nurses, they also have the right to have an independent umpire make a decision, which they will do by the end of the year.”

Mookhey said the government had reached “good agreements with the public sector [that] the state can afford”.

“The public sector wage policy is being paid for in the same way we said it would be paid for – through budget savings and through productivity changes in the workplace,” Mookhey said.

“The biggest form of budget saving we have put in place is to reduce our interest expenses by reducing our debt by $9 billion. As of 2025-26, we’re saving $1.8 billion in interest expenses.

“I’d prefer to pay my essential workers more and our creditors less.”

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