NSW Budget: Debt balloons to record $39bn

NSW debt is set to balloon to a record $39bn, putting pressure on for further asset sales.

NSW Treasurer Dominic Perrottet looks over the 2019/20 budget papers in Sydney.

NSW government debt is set to balloon to a state record $38.6 billion, putting pressure on the Berejiklian government to undertake further asset sales in order to get its ambitious infrastructure program through and deliver on Premier Gladys Berejiklian’s election campaign pledge that “NSW can have it all”.

Treasurer Dominic Perrottet delivered a budget today with surpluses, a stack of election giveaways and record infrastructure spending, more than half of which will go on roads and rail.

But the devil in the detail is a debt bomb waiting to explode with the government set to go from having a positive position of $8.8 billion in 2018-19 to net debt of $32.8 billion in 2021-22 and a whopping $38.6 billion in 2022-23 — the highest raw debt number ever recorded in NSW.

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The budget half yearly review in December had net debt at $22 billion for 2021-22.

The government is committing $6.4 billion to the $25 billion Western Metro project over the next four years so must find another $18 billion for that project alone.

In his press conference today Mr Perrottet left the prospect of further asset sales open, saying while the government had no plans currently and the debt level was “manageable”, “if issues come up I will consider all options and take advice to the premier”.

The government has the option of selling the rest of West Connex (with the first tranche having raised $9.25 billion) or the remaining 49 per cent of Ausgrid which would likely fetch $15 billion, although this would be difficult to get through the upper house and Premier Berejiklian has already ruled out further electricity network sales under her watch.

Mr Perrottet’s office pointed out to The Australian yesterday the government’s debt would still be half that of Queensland on a comparison to net state product basis.

Mr Perrottet delivered a surplus of just $802 million for 2018-19 (down from $4.2 billion in 2017-18), $1.016 billion in 2019-20, $1.2 billion in 2020-21, rising to $2 billion in 2021-22 and $2.6 billion in 2022-23.

Much of the recovery in budget position is pinned on a predicted recovery in the NSW property market. The government collected $8.6 billion in stamp duty in 2017-18, will receive $7.37 billion in 2018-19 and just $6.8 billion in 2019-20 before being projected to slowly rise to $9 billion in 2022-23.

NSW Premier Gladys Berejiklian and Treasurer Dominic Perrottet meet students at Kent Road Public School in Sydney yesterday.

Mr Perrottet said the budget bottom line had been affected by a write down in forecast stamp duty of $10.6 billion since 2017 and $2.3 billion in GST receipts — a record write down.

“Today we face a new set of challenges,” Mr Perrottet said in his budget speech.

“The global economic outlook is weaker than it was 12 months. Our farmers are battling what some are calling the worst drought in living memory.

“Our housing market has undergone the biggest downturn in four decades.

“And with wage growth still slow, homeowners are cautious with their spending.

“But just as we overcome the challenges of the past — so too will we overcome these new challenges.”

Mr Perrottet described the government’s “record construction program” which includes $93 billion of infrastructure spending over four years as the “cornerstone of our economy”. He pointed out it was worth 0.5 per cent of economic growth each year.

The treasurer listed an absolute shopping list of projects the government was set to open from a new stadium in the eastern suburbs to a new Walsh Bay arts precinct, the M4-M5 link tunnels, Parramatta Light Rail, the F6, The North South Metro Rail link, the new Western Sydney aerotropolis, a Powerhouse museum in Western Sydney, the M12 motorway, and other projects around the state.

The treasurer also lauded the fact that the government had spent $2 billion in two years on cost of living measures including a second $100 Active Kids voucher, a $100 Creative Kids Voucher, baby bundles, free dental checks for kids, weekly $50 Opal Card caps, $250 regional travel cards for seniors, caravan registration discounts for grey nomads and reductions in early childhood education costs.

As promised during the election campaign, the government will employ 4600 more teachers, 5000 nurses and midwives and 1500 more police. To pay for that the government will cut 2500 public sector jobs as part of reducing 5 per cent of employee related “back office” expenses.

The government will also air condition 900 more schools and spend $10 billion in health infrastructure, $6.7 billion building new schools and $55.6 billion in roads and rail.

The government has provided extra drought funding to bring the government’s drought relief package to $1.8 billion. It also provided $1.4 billion for water security measures including for developing a business case for raising the Wyangala Dam wall.

Mr Perrottet said the budget was for the bush, jobs and “we believe, as Reagan did, that work and family are at the centre of our lives, the foundation of our dignity as a free people”.

To ensure spending is done in an appropriate manner, Mr Perrottet has also announced a system where each of eight clusters in government will be required to produce and annual “outcome and business plan” with Education the first cab off the rank, to ensure the Gonski money is spent with real benefit.

He said his $3 billion Generations Fund — set up as a state future fund last year - was projected to rise to $28 billion by 2030. He said at his press conference that if debt got out of control, he could raid that Fund, which was due to hit $16 billion in value in 2023.

Mr Perrottet criticised federal-state financial relations and said “financial relations are a mess”. He said he would launch a review of federal financial relations “from a New South Wales perspective”.

“The people of NSW contribute the most in GST and income tax — yet have to sit and watch as it’s doled out to other states with no benefit for themselves.”

Mr Perrottet said he had spoken to federal treasurer Josh Frydenberg about his proposed review but not other state treasurers.