New South Wales will “almost certainly” lose its remaining top-notch debt rating after an “absurd” carve-up of GST revenue stripped more from state revenue than Covid-19, the state’s treasurer, Daniel Mookhey, said.
The assessment comes about a month after the Commonwealth grants commission revealed how it would allocate GST money. NSW complained it would lose $1.65bn even as its population swelled and other states, such as Victoria, got extra funds.
Mookhey will tell the McKell Institute in Sydney on Monday that the hit to NSW from the commission verdict would be $11.9bn over four years.
“The Commission’s decision will cost NSW more in lost revenue than Covid-19 did,” the treasurer will say, according to excerpts from his speech. “NSW has never had such a sudden fall in GST.”
The shortfall is equivalent to losing 19,000 healthcare workers, or the amount NSW spends each year on police, Tafe and mental health combined.
S&P, one of three main global ratings agencies, cut NSW’s debt rating from its highest level in 2020 as a result of a debt surge during the pandemic. Moody’s and Fitch, which have maintained their top ratings for NSW borrowings, probably won’t for much longer, Mookhey said.
“Last year we found $13bn in savings in our first budget. It helped us hold on to the AAA-credit rating,” he said. The “GST rip-off”, though, had sent the state “back to square one [and] almost certainly will lead to a downgrade”.
NSW’s debt rating is higher than the United States’, and only one of 21 sub-national governments worldwide to enjoy a AAA standard, Mookhey said.
The Albanese government has shown no interest in revising the GST deal signed by their Coalition predecessors despite it giving Western Australia as much as $50bn over a decade. It instead extended current arrangements to at least 2030.
The Minns Labor government is not holding high hopes for major additional support from the federal budget on 14 May. The federal treasurer, Jim Chalmers, said last week his third budget would “align our national security and our economic security interests” to cope with escalating risks around the world.
With inflation ebbing, NSW, meanwhile, is understood to be preparing for weak or no growth in the near term as the state’s main economic challenge.
The Australian Bureau of Statistics will release March-quarter inflation figures on Wednesday. Economists forecast annual consumer price inflation eased to about 3.5% by the end of March from 4.1% in the December quarter.
NSW had been targeting a “modest surplus” of $475.1m for the current fiscal year. That result now won’t be achieved, and the aim of surpluses in 2025-26 and 2026-27 is also in doubt.
Budget repair that gives the government scope to bolster the economy if needed will be the priority in the state’s June budget, Mookhey said.
“I think protecting family budgets takes precedence over the AAA-credit rating,” Mookhey said. “I think having the flexibility to respond to the risk of recession is more important than the AAA in the current economic climate.”
He said it was wrong to label NSW as “greedy” and “the big bad state that will not share”.
“For every dollar that Victoria will give to the smaller states next year, NSW will give upwards of four,” Mookhey said.
GST should be divvied up according to population share, with smaller states given top-ups from the commonwealth to ensure they were no worse off, he said.
“A reform like this will take time,” he said. “So the premier [Chris Minns] and I will be patient.”
In the meantime, NSW will delay finalising other key agreements with the federal government over issues such funding of public hospitals and public schools.
“Getting them done right is more important than getting them done quick. And if that means waiting until after the budget [due in June] before we strike an agreement, then we will wait until after the budget,” Mookhey said.
On Monday, federal treasurer Jim Chalmers said it was “easy but wrong to blame the Commonwealth government” for its own budget pressures, adding that the grants commission was independent.
“NSW is receiving billions in extra funding from the Albanese government in the form of support for health and hospitals funding, investment in housing, and the extension of the No Worse Off Guarantee,” Chalmers said.
