The New South Wales budget, the last before the state goes to the polls next March, seeks to learn from lessons that saw voters kick out Coalition governments in South Australia and federally, while projecting an optimism about the future even as economic clouds darken.
“There’s always a better tomorrow if we choose to reach for it,” was the tone presented by the characteristically upbeat treasurer, Matt Kean.
After female voters turned on the Morrison government, Kean has allocated $16.5bn over the coming decade “to make NSW the best place for women to live, work and raise a family”.
The forecast economic dividend of an additional $17.1bn in economic activity within that 10 years from such spending will come in handy, too – but whether this amounts to “a once-in-a-generation reform budget”, as Kean put it, remains to be seen.
The biggest nod in the direction of reform is starting a shift from the reliance on stamp duty – still worth $14.6bn to the 2022-23 budget. This remains tentative, open only to first home buyers purchasing homes up $1.5m in value before the federal government comes to the party to help cover the shortfall in revenue.
The trajectory of the economy in NSW and beyond will determine whether the budget can deliver on its promises, such as shifting from a record annual deficit estimated at $16.6bn for the fiscal year about to end, to a surplus of $601m by 2024-25. In the background, net debt at $53.5bn at June 2022 will more than double to $114.8bn in four years’ time when it will “stabilise” at 14% of gross state produce “before trending back down”.
Global ratings agencies will be among those watching closely – with two of the big three already cutting NSW’s triple-A debt rating – but there are other predictions to eye somewhat sceptically.
Economic growth itself will be one of them. The quickening of growth in the coming fiscal year to 5.5% expansion, doubling from 2.75% in the year just ending, will be one to watch. The pace of growth, though, slows sharply to 1.75% in 2023-24, and that assumes no more Covid variants or other big surprises such as another La Niña-influenced season of floods in the year ahead.
Inflation and its consequences – good and bad for the budget – are also among the numbers to watch. The budget counts only Sydney’s consumer price inflation rate – rather than NSW-wide – and this it sees accelerating from 4% in 2021-22 to peak at 5.5% in the coming year before easing back to 3% in the two following years.
Wage growth, though, will only quicken from 2.25% to 3.5% in the coming year, and 3.25% in the coming years. The prospect of labour strife from the public sector is already evident from recent industrial action by teachers, paramedics, rail workers and others.
That the government plans to increase spending on public sector salaries by 2.9% on average over the coming four years, a rate likely less than inflation, will probably be noted by restless unions. Similarly, a proposed “efficiency dividend” of $515m in 2023-24, from a 1% rate, will probably be unwelcome, not least because it will rise to 2% in 2024-25 and 3% in 2025-26 onwards. “Savings are targeted to be delivered through non-frontline activities, grants management and administration, and ongoing digital transformation,” the budget states. Frontline staff will, though, be retained, Kean told journalists.
Rising inflation, meanwhile, will have a benefit of lifting the GST take NSW receives from the commonwealth, pumping more than $11bn more funds than were originally forecast into the budget over the coming four years. Aside from a $4bn boost from extra minerals royalties – thanks largely to Russia’s invasion of Ukraine sending coal prices skyward – no other budget boost came close.
There are some interesting additions to the budget such as increased spending on compliance that seems to provide the biggest return on investment. Some $60m spent will return $368m in more land tax and $200m in more stamp duty. Money well spent.
Similarly quirky will be the requirement of overseas drivers to take a NSW licence within three months, a move that will recoup $53.5m in hitherto unpaid fines in the first year alone. That tally shrinks below $20m in the second year as those lessons sink in.
Future clouds, meanwhile, include the end of the stamp duty bonanza that lifted the tax take from property transfers by an extra $1.2bn or 9.2% in 2021-22 alone. That sum will fall away as prices drop but the government predicts the market stabilising after a couple of tough years.
Not mentioned in the budget but of note for their omission are the big dam projects, none of which get any funding. While there is a passing mention of the Dungowan dam, the dam wall raising efforts for Wyangala in central NSW and Warragamba to Sydney’s west – both potentially multibillion-dollar projects - have “no new money in the 2022-23 budget”, staffers say.
Those savings, assuming those projects don’t go ahead, will save some future government a budget headache.
