Treasurer’s safe-as-houses budget

Uncertain economic times globally provide a handy excuse for governments of all stripes to explain away a challenged economic performance today while embellishing how good things may look in the future. This is the trick at the heart of the NSW budget that blames global uncertainty for current deficits but forecasts that higher growth in the future will bring things back to surplus. Maybe, but who can say with certainty?

NSW Treasurer Daniel Mookhey has forecast two years of deficit for the nation’s most populous state, followed by two years of small surpluses. The growth forecast for the current financial year and 2025-26 has been trimmed to 1.75 per cent, as against 2 per cent forecast a year ago. After that, growth is presumed to rebound strongly. Under this rebound gross debt – which is projected to reach $179bn by June 2026 – will shrink as a proportion of gross state product to below 20 per cent. For reference, this is about five percentage points lower than what is forecast for Victoria. Even so, as Judith Sloan has noted, the level of debt will continue to rise and the calculation that it will decline in terms of its ratio to state output is “more useful political assumption than rigorous economics”.

There is further politics in the central message from the Minns government that “NSW is open for business” given there was little to promote the interests of small business or build productivity more generally. Instead, the centrepiece of the budget was a big spend for child protection services and government guarantees to support up to $1bn of new housing in what appears to be a fallback position for the failure to secure the purchase of the Rosehill racecourse site for a master-planned development. The housing measures include a pre-sale finance guarantee in which the government will become guarantor for up to $1bn worth of new housing projects, allowing construction of up to 15,000 homes across five years. Under the scheme, the government will guarantee the sale of a set number of homes, taking the risk for speculative builders who might otherwise struggle to convince lenders they have a viable project.

Opposition Leader Mark Speakman hit the mark with his observation that net debt was rising despite projected increases in revenue from GST, payroll tax and stamp duty. On housing, using government money to de-risk projects that are not economically viable because of high building costs will only shift the losses to taxpayers. This is a lesson that applies equally to state and federal governments.