18 Dec

NSW Government’s Half-Yearly Budget Review for 2015-16

By PremierState

Treasurer Gladys Berejiklian has released the NSW Government’s Half-Yearly Budget Review for 2015-16.

The Review indicates that NSW remains in a strong economic and fiscal position.  Above-trend growth, supported by low interest rates, a lower exchange rate, population and employment growth and a pipeline of public infrastructure projects, will position NSW as the engine room of the Australian economy.

The Budget is expected to remain in surplus across the forward estimates, averaging $2.6 billion each year, while net debt has been revised down significantly and will remain at modest levels.   

Further strengthening the State's finances will be the successful long-term lease of TransGrid - the first tranche of the 'poles and wires' - with the $10.258 billion proceeds to go towards the $20 billion Rebuilding NSW plan.

However, the Treasurer highlighted growing pressure on the Budget in the medium term due to the structural reductions in the growth of Commonwealth health and education grants from 2017.

Economic and Fiscal Outlook

The Government expects that weaknesses in the Australian economy and global economic conditions to flow through to the NSW economy. Against this weaker outlook, NSW growth has been revised down slightly this year, however by 2016-17, a recovery in the non-mining sectors is expected to drive growth back above-trend.

While mining investment has continued to decline sharply and commodity prices deteriorated further throughout the year, the structural adjustment in the national economy to more broad-based drivers of growth continues to play to the State’s strengths.

The State’s public infrastructure program remains a key driver in the forecast pick-up in economic growth over the next two years, while the lower Australian dollar is also expected to support activity in sectors such as tourism, education and manufacturing.

The recent strength in the labour market, with NSW employment growth outpacing the rest of Australia and the unemployment rate the lowest in the nation, will be sustained over the year ahead.

However, surpluses from 2016-17 onwards are lower than that forecast at the time of the 2015-16 Budget. This revised outlook reflects a forecast decline in the NSW GST relativity due to the State’s strong economic and revenue performance compared to the other states. This will only embolden the NSW Government in its calls for comprehensive national tax reform.

Revenue and Expenses

Consistent with the requirements of the Fiscal Responsibility Act 2012, annual expense growth is forecast to be below the long-term average revenue growth of 5.6 per cent.

While stronger transfer duty revenue and the long-term lease of TransGrid will see the revenue forecast in 2015-16 higher than at the Budget, it will be generally lower over the forward estimates, for the reasons already described.

On the revenue side, policy decisions taken by the Government since the Budget are broadly neutral this year, but decrease revenue by $75 million over the three years to 2018-19.  These decisions include:

  • NSW wagering rates being progressively reduced over five years to achieve parity with Victoria;
  • The deferral of payroll tax to BlueScope Steel of up to $60 million over three years from 2016; and
  • Reform of the Emergency Services Levy

While on the expenses side, new policy decisions expected to affect the Budget result over the forward estimates include:

  • Provision for a single, national redress scheme for survivors of institutional child sexual abuse;
  • Additional funding for preventing and responding to domestic and family violence;
  • A package of measures for countering violent extremism;
  • Upgrading security at police stations as well as the purchase of new surveillance aircraft; and
  • Additional funding to increase aerial shark surveillance as well as trials of new technology as part of the NSW Shark Management Strategy.

Additionally, new infrastructure projects announced since the June Budget have contributed to the growth in capital expenditure, including:

  • $177 million from the Restart NSW fund for the development of the new Grafton Bridge;
  • $348 million from the Restart NSW fund for road connectivity and network enhancements for the new Northern Beaches Hospital;
  • $223.7 million funded for corrective services capacity; and
  • $130.1 million funded for the development of WestConnex Stage 3.

Changes in the delivery schedule of Newcastle Light Rail and CBD and South East Light Rail have also had an impact.

Sustainability of Government

The Government has reaffirmed its commitment to improving the performance and asset management of government-owned businesses in order to reduce the cost of services and improve service delivery to customers.

It will prepare for sale of its superannuation administrator (Pillar) calling for expressions of interest in 2016 while also undertaking a separate business transformation process.

The Government is also developing a cash management strategy.  Using the expertise of a Steering Committee including independent experts, the strategy will support better balance sheet management and ensure the Government earns the best possible returns on its financial assets. This will be particularly important, given the considerable funds that are expected to be generated from the sale and lease of assets.

More Information

The 2015-16 Half-Yearly Review can be downloaded here.

For further analysis, clients can contact PremierState on (02) 9223 0311 or via email: enquiries@premierstate.net

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