The freshly elected Minns minority government has slipped the delivery of the NSW budget by three months ahead of thrashing out key wage deals with the biggest unions, but will still show the state’s books to the markets in an interim June economic update.
With industrial pressure steadily mounting across Australia for double-digit pay increases, Australia’s biggest state and its new treasurer, Daniel Mookhey, are expected to take the shears to a number of big-ticket infrastructure rollouts set in motion by the previous government, including the Sydney Metro.
Major machinery of government changes are anticipated come June, including to portfolio and super-department clusters, which will also need to be reflected in the Budget now slated for September.
The slipping of a full budget after a change of long-term government is not controversial or new, especially as machinery of government changes are pushed through. Michael Coutts-Trotter, the demoted former head of the Premier and Cabinet (itself being dissolved), has been tasked with heading Treasury to craft the document and guiding Mookhey and Minns through the minefield.
The NSW Budget is one of the most carefully watched in the region by sovereign debt markets — partly because it has a ‘AAA’ credit rating and partly because the state has never been shy about issuing scrip to fund major projects or later flogging-off to neutralise the hit on the books. Ratings agency S&P has already signalled it will be sniffing around the public services wages bill come Budget.
Even so, few doubt the political and fiscal agenda is primed for substantial change, with Minns successfully elected on a platform of bumping public service wages and halting privatisations in portfolios like transport and energy, the latter of which was the source of a decade-long factional battle within the state party over electricity privatisation.
There will also be many eyes on Victoria, where the Andrews government is prepping its public sector for job cuts of as many as 6,000, or potentially as much as 10% of departmental staff, to bring debt under control.
Prior to massive cash injections under the COVID stimulus, NSW was returning embarrassingly large surpluses courtesy of a booming state economy fuelled by concurrent property and financial sector booms, the latter of which imploded with the pandemic.
In a controversially progressive manoeuvre, the former government ploughed much of the money back into infrastructure rather than handing it back as discounts or tax cuts.
Another hit on the books has been a succession of climate-driven disasters, ranging from the horror 2019-20 bushfire season to persistent record flooding, that have produced big recovery and clean-up bills covering everything from emergency accommodation, land and home buybacks and infrastructure replacement like roads that are now washed away yearly.
One of the biggest challenges for Labor is that it will likely have to cut its way to partially re-balancing the books because of key promises it made not to sell off assets for fiscal silver, like selling the rights to otherwise cash-hungry tolled freeways and tunnels that underpin the previous government’s gargantuan infrastructure renewal program slated at $115 billion.
“These challenges can’t be fixed overnight. It will take time and there will be tough choices,” Mookhey said in background quotes sent to the media.
“But I’m confident we have the right rescue team in place to ensure we can focus on rebuilding our essential services and investing in the people who look after us.”
One of the reasons for priming the electorate for spending cuts is that promising fresh spending like public service pay rises and toll relief can suck money out of the coffers as quickly as it is collected, especially as interest rates continue to climb.
A fair amount of the state’s debt will be hedged and locked in at a price where there is a reasonable buffer — ‘AAA’ credit ratings do count for something — but the time to make big, up-front changes is limited.
Labor has opted to keep one major cash pipeline open, vowing during the election to dump property stamp-duty reforms that force buyers to pay the property turnover tax in one big up-front hit, rather than paying an annual amount similar to rates.
The stamp-duty versus land-tax debate is not politically consistent across jurisdictions; NSW Labor opposes it as a regressive impost while the ACT’s Labor-Greens government hails the mechanism as an equitable and progressive reform.
With the NSW property market spontaneously reigniting after just one interest rate pause, keeping that cash pipe open may look ideologically inconsistent but fiscally pragmatic.
The question now is, after a decade of robust employment demand fuelled by infrastructure renewal and building companies starting to falter, how hard is Mookhey prepared to push to deliver public service pay rises and savings together?
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