NSW fast tracks to slim surplus despite pandemic, catastrophic flooding

The NSW budget is projected to return to surplus within three years despite the Omicron outbreak, flooding and the Perrottet government splashing $27bn.

NSW Treasurer Matt Kean says the NSW budget is a ‘once in a generation’ economic reform. Picture: Gaye Gerard.

The NSW state budget is projected to return to surplus within three years despite the Omicron outbreak, catastrophic flooding and the Perrottet government splashing $27bn on women, early education reform and cost of living payments for households.

But the state’s deficit for 2022-23 has been revised to three times the $3.6bn forecast in December half-yearly review, while efforts to bring net debt down towards 7 per cent of gross state product appear to have been abandoned.

Ahead of the NSW election in March 2023, Treasurer Matt Kean continued his splurge during Tuesday’s budget, providing $150 vouchers to families with school-age children to offset the cost of school supplies for term one in 2023.

The additional spending came after significant outlays on already announced reform measures – more than $12bn on early childcare and $8.3bn on health – and cash handouts including toll rebates of up to $750 for drivers and a $3000 one-off bonus for healthcare workers.

Mr Perrottet’s landmark tax reform, shifting the state from stamp duty to land tax, was more tentative than expected, enabling first home buyers to opt-in to the scheme and pay an annual levy of $400 plus 0.3 per cent of the land value, delaying the eventual overhaul.

NSW Treasury predicts the government’s fiscal position will deteriorate to a $16bn deficit next year before returning a slim $601m surplus by 2024-25 – marginally larger than forecasts in December last year.

The return to surplus, however, was contingent upon a significant windfall from the redistribution of the GST and the economic outlook remaining resilient despite fears of a recession. Gross state product is forecast to reach 4.25 per cent in the next financial year, averaging 2.5 per cent over the next five years.

Mining royalties are also forecast to assist in budget repair with sky-high coal prices, a $3.8bn improvement over the forward estimate and a 51.9 per cent increase on the 2011-22 half-yearly review.

The 2022-23 NSW budget was a “once in a generation” economic reform, Mr Kean said on Tuesday, underlining the economic opportunities available to NSW by closing the 9 per cent participation gap between women and men.

“It is an economic imperative that we respect, hear and empower women in the workplace because their brilliance, contribution and creativity are things that we should be backing,” he said.

Mr Kean estimated the reforms in conjunction with childcare commitments could expand the state’s economy by up to $17.1bn a year. He said the NSW government’s reforms were aimed at dismantling the “structures … of a bygone era” where households were composed of a “male breadwinner and female homemaker”.

“In providing affordable and accessible childcare, we can build a state where a person’s prospects are governed not by expectations from the past, but by their hopes for their future,” he said.

Labor leader Chris Minns attacked the budget as a “two week” effort to make up for 12 years of “waste and management”, saying the state was headed for $182.2bn in gross debt and interest repayments set to grow by 24 per cent per year.

“This isn’t a budget about NSW’s best interests, this is a budget about the best interests of the NSW Liberals and Nationals,’ Mr Minns and opposition treasury spokesman Daniel Mookhey said in a joint statement.

Net debt was forecast to increase from $53.5bn, or 7.8 per cent of GSP, this year to $105bn over the forward estimates. Mr Kean said net debt would stabilise at about 14 per cent of GSP by June 2026 before gradually declining by the end of the decade.

But the budget made no mention of the 7 per cent net debt target previously flagged in December, raising questions about the Coalition’s long-term strategy to reduce the state’s debt burden.

S&P Global Ratings analyst Martin Foo said NSW’s post-pandemic budget repair was “still on track” but had been “adjourned in the near term”, pointing to the budget commitments on healthcare, early childhood education and toll road rebates.

“It’s been a case of two steps forward, one step back for NSW’s budgetary journey,” Mr Foo said.

“With high vaccination coverage and near-record low unemployment, NSW is now well placed to drive its operating position back to balance over the next few years, a crucial factor underpinning our ‘AA+’ rating on the state.”