Housing was presented as a centrepiece of the first Labor New South Wales state budget in more than a decade.
But handing down a set of fiscally conservative financial books on Tuesday, the NSW treasurer, Daniel Mookhey, was at risk of underwhelming those who voted for a government that could tackle the problem head on.
Mookhey could not say when the state would be out of a housing crisis that the committee for Sydney found was costing the economy more than $10bn a year.
“It’s going to take time,” he conceded.
“We cannot reverse a decade of neglect quickly. We are running the risk of evicting an entire generation from home ownership which is a fundamental break to our national character.”
The treasurer spent much of his first budget press conference explaining how a modest $300m direct investment in the state-owned Landcom to build fewer than 5,000 homes over the next 16 years would shift the dial.
He said it was “just the start” and pointed to the $2.2bn overall spend on housing in the budget, mostly for infrastructure that would enable future growth.
“If we don’t build the streets, no one will build the homes,” he said.
For renters, a recently appointed rental commissioner tasked with improving the laws to give people who don’t own more rights, but by the treasurer’s own admission to Guardian in April, “the best way in which we can be alleviating rental stress is to build more properties” so there is not a lot for them in Tuesday’s announcements.
Instead, the treasurer is framing the budget as the start of a long process of reform across all parts of the economy and the start of rebuilding essential services, including schools and hospitals.
NSW has framed its inherited budget as one that needs repair – the debt situation facing NSW is not insignificant.
Net debt was forecast to rise every year over the forecast period, hitting $113.6bn by 2026-27. This was lower than previously forecast, with the decrease primarily driven by a change to the generations fund, a type of sovereign wealth fund.
The government argues that it no longer makes sense to contribute to a fund during a period of deficits, when returns generated are less than debt repayments.
The state government also wants to put a handbrake on expenses growth, and make sure it doesn’t outpace revenue, which is a key financial discipline credit ratings agencies look for.
AMP chief economist Shane Oliver said after a prolonged period of very strong property prices and high sales volumes, the state’s finances should be more robust.
“There’s been some ups and downs along the way, but it does surprise me they are not in better shape,” Oliver said.
“Property prices are still elevated, so while we are not getting the same level of property transactions, there are still high prices so stamp duty revenue is still strong.”
For years, NSW property transfer duties, also known as stamp duty, have overshot expectations amid prolonged housing strength. For example, the former government received more than $5bn more from property duties in 2021-22 than what it had budgeted.
While the former Liberal state government did bear the one-off pandemic costs that blew up its operating budget, debt was already rising, and income generated from the Baird-era privatisations had been re-invested or spent.
“This was the largest debt any incoming state government has ever inherited from its predecessor,” treasurer Daniel Mookhey said.
“This government favours paying our essential workers more and our bondholders less.”
NSW is now at risk of a credit downgrade, and there is little room in the financial books to cope with another significant shock, even though it remains in much better financial shape than its southern neighbour, Victoria.
Net debt in NSW is forecast to represent 12.6% of the state’s economy by 2026-27, compared to 24.4% in Victoria the same year.
The return of NSW to surplus, and ability to pay down debt, relies on an anticipated increase in income from tax.
Over the four years to 2026-27, total taxation revenue in NSW has been revised upwards by $17.6bn from previous forecasts, underpinned by property transfer duties and payroll tax.
Forecasts for the twin revenue streams are being aided by high immigration, low unemployment and rising wages, as well as an enduring property market. Any significant deterioration in economic conditions could erase the state’s anticipated return to a thin surplus in 2024-25, and make getting debt levels down all the more difficult.
While the numbers look pretty rosy in the scheme of budgets, the treasurer isn’t taking it all to the bank just yet.
“I am certainly not going to suggest this surplus is locked and loaded,” Mookhey said.
“The numbers will be what the numbers are.”
The precarious budget position goes a long way to explain the lack of a show-stopper announcement that might have risked adding debt and fuelling inflation in a cost-of-living crisis.
