One reason for the blow outs is what the budget calls “the large investment in the health system to improve capacity and resilience, continuing support for COVID-19 and flood response”. But new spending decisions made by the government, including direct payments to households, are another big factor. This includes toll relief ($520 million over the next two years) and back to school subsidies which roll out a few months before the March 2023 election ($193 million).
3. Revenue v expenses
A challenge for every government is to keep revenue growth and expenses growth roughly aligned. COVID-19 made that impossible for governments across the world – the pandemic caused expenses to surge and revenues to slump.
NSW was no different – the state’s finances show a big gap between expenses and revenues has opened up during the past few years and the government is forecasting it to gradually narrow. But that won’t be easy. A lot will have to go right if the government is to deliver its next surplus as forecast in 2024-25.
4. Where the money comes from
The state budget is still recovering from the damage done by COVID-19. But the government has recently received some welcome revenue windfalls to fortify the coffers.
As this chart shows the GST is a major contributor to state finances, and it is forecast to chip in $11.5 billion more than previously expected over the next four years. Mining royalties will also be much higher due to a boom in global commodity prices.
But this year’s budget comes with a warning: Over the long run, as the population ages, revenues are expected to grow at a slower pace than they have historically. The best way to deal with this challenge, the budget says, is through reforms which boost the productive capacity of the economy.
5. Doubling the debt
The state’s debt position has deteriorated sharply since the onset of the pandemic. One key metric is net debt which takes account of the state’s liabilities and assets.
In the past two years that measure has jumped from $22.7 billion (3.6 per cent of gross state product) to $53.5 billion (8 per cent of gross state product) and is forecast to reach $115 billion (or 14 per cent of GSP) by June 2026.
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Source: SMH
