The New South Wales government has vowed to invest $2.2bn in housing and infrastructure projects, including new roads and schools, in Labor’s first state budget in more than a decade.
The government has forecast a $7.8bn deficit this financial year but expects a string of modest surpluses after that, bankrolled by its big twin revenue streams of property and payroll taxes.
The state’s booming property market will see stamp duty revenue increase as people who delayed buying a home during the pandemic and inflationary period return to the market.
Budget figures revealed NSW was expected to be back in the black next financial year and would focus on paying down debt after finding $13bn to redirect into essential services through an expenditure review.
The treasurer, Daniel Mookhey, said his government was trying to rebuild a buffer for future financial shocks, such as natural disasters.
“We’re putting aside that money for a rainy day,” he said on Tuesday.
Within its headline housing spend, the government pledged to build almost 5,000 homes through the state-owned Landcom by 2040. Of those, about 1,500 were expected to be “affordable homes” while the rest would be left for the private market.
Mookhey conceded it was a small figure given the scale of the issue with “rising rents [and] sky-rocketing mortgages”, but promised it was just the start.
The government expects about 3,000 homes to be delivered by 2031, mostly on government land identified as part of an audit announced earlier in the year.
Landcom will also receive $60m for a pilot of publicly-owned build-to-rent projects in regional NSW, as the government looks to rebuild the role the agency played in delivering homes.
“NSW is in the midst of a fierce housing crisis,” Mookhey said. “It’s the start of what we intend for Landcom. We are wanting to be imaginative. It is a jewel that wasn’t privatised.”
The government also pledged $400m for infrastructure including roads, parks, lights and schools to open new areas to development and enable infill within Sydney. “If we don’t build the streets, no one will build the homes,” Mookhey said.
Tax revenue revised upwards by $17.6bn
Over the four years to 2026-27, total taxation revenue has been revised upwards by $17.6bn from previous forecasts.
The outlook relies on the absence of a major shock to the Australian economy, even as China’s ailing property sector threatens to unsettle global markets.
NSW has one of the strongest job markets in the country, tracking well below the national 3.7% unemployment rate. It is also recording strong immigration levels that underpin the upbeat outlook.
But there are some economic signals flashing red in Australia’s largest state economy that could derail the forecasts. The number of new dwellings starts is down almost one-fifth from the state’s decade average amid high building costs and moderating home lending.
When growth in new home builds falls, consumer spending suffers because there is less demand for appliances and furniture.
The government has confirmed it will not proceed with the state’s fast rail program. That’s despite the previous Coalition government spending $100m on studies concerning the high-speed lines, proposed between Sydney, Newcastle and Wollongong.
The duplication of the Great Western Highway has also been shelved, as the government identified it and the fast rail program among billions it could save and reprioritise into already announced Metro lines and roads in the face of the ballooning cost of its infrastructure pipeline.
The budget was handed down on Tuesday as the state grapples with a massive increase in debt putting the state on the cusp of a sensitive credit rating downgrade.
NSW is reining in projected debt levels, with gross debt projected to hit $173.4bn by June 2026, which is $14.8bn below projections disclosed in the pre-election budget update.
Reducing debt is expected to save taxpayers $2.3bn of interest repayments, which the government said would be redirected to supporting essential services. Crucially, debt is still forecast to rise every year over the estimates, raising questions about when it will peak.
Families and households will be provided with relief from the “once in a generation” cost-of-living crisis through a range of subsidies including $500 per child in fee relief for three-year-olds in long daycare.
Energy bill and toll relief measures have also been extended for some parts of the population.
After a review of government spending, Mookhey announced a $530m reduction in spending on consultants and labour hire, a saving of $111m by merging the Greater Cities Commission and Western Parkland authority into the planning department.
The government has already announced its intention to see more homes built closer to Sydney’s CBD and along transport routes, and pledged $224m to build more social housing properties as the need continues to increase.
The Minns government’s decision to bail out Sydney’s embattled Star casino by lowering taxes for every casino in NSW was expected to cost the government $432m in lost revenue over the next four years.
Labor expected to collect $1.5bn less gambling revenue over the same period than the previous government had forecast before the March state poll.
The government explained the revised figure is a result of the lower casino taxes, as well as a reduction in pokies use in both clubs and hotels and a “more subdued outlook” for Sydney’s casinos.
In the run up to the budget, the government announced a cap on tolls; $1.8bn for renewable energy infrastructure; $3.5bn for school builds and upgrades in Sydney’s west and south-west; and $1.4bn for regional schools.
It also announced more than $2.5bn for healthcare including hiring paramedics, nurses and midwives and a $13.8bn investment in health facilities.
The government also introduced an increase to coal royalties for the first time in almost 15 years, which is forecast to deliver an extra $2.7bn to the government over the next four years.
The government has already scrapped the wages cap – a key plank of its election platform – and announced a $3.6bn fund to support long-term pay growth for workers including nurses, paramedics and teachers.
Additional reporting by Elias Visontay and Catie McLeod
