“Building a Better NSW” - Economic Implications of the Latest State Budget
Market Insights

Paul Ashworth, Managing Partner

Eric Boesten, Senior Analyst

First quoted in 3BC by the Greeks, beauty is most certainly in the eyes of the beholder. The NSW State Budget was handed down yesterday, which we assessed on the premise of completely unrealistic expenditure growth estimates (too low at 1.7% pa) and growth in indirect property taxation (optimistic). Viewed through a wider macroeconomic ‘lens’, the NSW Government’s budget further complicates inflation moderation, productivity improvement, and resultingly, is negative for long term interest rates and balanced economic growth.
Posted 19 June 2024

In its second iteration, the New South Wales Labour government has unveiled a budget titled "Building a Better NSW," painting a picture of ambitious spending amidst a backdrop of harsh economic conditions. Treasurer Daniel Mookhey’s budget underscores a sixth consecutive deficit for the state, projecting a $3.6 billion shortfall during a period of decade-high inflation, emphasising a need for focused spending such that the spending itself is not contributing to higher inflation. 

Immediate budget winners come in the form of prospective homeowners and social housing beneficiaries, as the budget promises to tackle the mammoth housing affordability crisis. A commitment to deliver 30,000 homes in an attempt to slacken the supply/demand chokehold causing the increasingly high property prices present in the state. Additionally, there is a $5.1 billion investment over four years to create 8,400 homes for public housing residents. With repeatedly high immigration levels, we find this band-aid solution is akin to putting a piece of tape over a leaky pipe. 

Conversely, investment property owners face new burdens. A $1.5 billion increase in land taxes, stemming from a frozen tax-free threshold, will affect an estimated 35,000 additional homeowners. Foreign buyers are also targeted with increased surcharges, a move likely to temper foreign investment in NSW’s property market. 

The budget delineates substantial investment in public infrastructure and essential services. A notable $2.1 billion allocation will fund the second stage of the Parramatta Light Rail, with additional capital aimed at expanding public transport in Western Sydney and upgrading roads around the new Western Sydney Airport. Given the aforementioned increase in population, the completion of these projects are critical to ensure New South Wales households are not worse off on a per-capita basis, which is what we have seen across the rest of Australia. 

The education sector is not left behind, with $1.5 billion earmarked for school maintenance and new school projects, predominantly in western Sydney. 

The budget has specifically signalled out essential workers, with measures including a $1,000 cost-of-living adjustment and substantial investments in housing for healthcare workers across rural areas.  

Developers and builders emerge as other beneficiaries of the budget plans, with $253.7 million allocated to expedite development approvals via improved planning processes. Whilst this aim to stimulate a construction sector that has slowed to a decade low due to high costs and interest rates may be reasonable, the cost of doing so does not seem like responsible fiscal spending. 

In conclusion, the New South Wales government's latest budget, though ambitiously titled "Building a Better NSW," reveals a concerning pattern of fiscal imprudence amidst a backdrop of decade-high inflation and persistent deficits. While the commitment to address the housing crisis and invest in infrastructure is commendable in theory, the execution appears more like a patchwork of short-term fixes rather than sustainable solutions. The decision to increase land taxes and target foreign investors risks dampening a crucial sector without guaranteeing long-term affordability. Furthermore, the heavy spending on public infrastructure and essential services, though necessary, seems overly reliant on expansionary policies that may further strain the state's finances without delivering proportional benefits. As NSW grapples with its sixth consecutive deficit, one cannot help but question the government's capacity for responsible fiscal management. This budget, rather than building a better future, risks deepening the economic challenges faced by the State and its residents. 

Speak to one of our advisers to learn more: paul.ashworth@cameronharrison.com.au

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