NSW State Budget 2019-20

The following is an article from the NSW Business Chamber detailing the state budget and the main areas of spending and savings. It is interesting that even with the weaker housing market and the drought, they are still forecasting sound economic growth and budget surpluses over the next 4 years. Time will tell.

Despite more challenging fiscal conditions highlighted by declines in stamp duty and GST revenue, the 2019-20 Budget paints a picture of future strength with surpluses averaging $1.7 billion over the next four years.

Economic growth has been downgraded in line with national economic trends.  A weaker housing market and current drought conditions continue to weigh on economic conditions in NSW.  A NSW economic blueprint will be developed to identify and implement the next wave of reforms to boost economic growth.

The Budget responds to the NSW Business Chamber’s calls for a review to examine the sustainability of the state’s finances.  The review of federal financial relations will examine challenges relating to the efficiency of the NSW tax system.

The Budget does not present any major new tax or policy initiatives for NSW businesses, though confirms payroll tax cuts will be delivered on time and in full.  It also confirms previously announced changes to payroll tax administration aimed at reducing costs for business.
1 — Budget Position and Economic Forecasts

 

The NSW Budget is expected to remain in surplus over the forward estimates with surpluses averaging $1.7 billion over the forward estimates, including a surplus of $802 million for this financial year and $1 billion budgeted for 2019-20.  This remains a strong result amid weaker than anticipated GST and transfer duty revenue.

Budget Results Graph

The Budget also confirms slowing momentum in the NSW economy with further downgrades to the economic outlook off the back of those published in the Pre‑Election Budget Update.  The economy is forecast to grow by 2¼ per cent in 2018-19 and 2019-20 (down from a forecasted 2½ per cent) before increasing to 2½ per cent in the years to 2022-23.  The labour market is expected to remain strong with the unemployment rate expected to remain steady at 4½ per cent.

  • The Budget reaffirms the NSW economy is facing headwinds with factors such as drought and a weaker housing market weighing on growth.
  • Cuts to interest rates combined with personal income tax cuts, and increased policy support for the housing sector – are expected to support the economy despite the near term challenges.
  • Continued strength in infrastructure spending, which is projected to reach a record $93 billion over the next four years, will also support growth.
  • As part of a four pillar strategy to ensure NSW’s economic future, a NSW economic blueprint will be developed to identify and implement the next wave of reforms to boost economic growth.
  • While falling revenues underpin a weaker fiscal environment, surpluses remain strong.  The Government has made $10.6 billion in downward revisions to transfer duty and a further $2.3 billion in downward revisions to NSW’s share of GST revenue.
  • Despite overall expenses being higher due to the implementation of election commitments, the Budget bottom line has been supported by $3.2 billion in savings initiatives which will reduce expenditure growth to under 2% by 2021-22.

2 — Tax

The Budget also announces a review of Federal Financial Relations from a state perspective.  This review responds to calls made by the NSW Business Chamber to review the sustainability of state finances and will examine challenges relating to the efficiency of the NSW tax system.

  • The Budget does not include any significant tax savings or announcements for business.
  • The Budget reaffirms cuts to payroll tax will be delivered on time and in full (the payroll tax threshold will increase to $1 million by 2020-21).
  • Revenue from the Emergency Services Levy (including insurer and council contributions) is forecast to grow to $1.1 billion in 2019-20 (up $143 million from 2018-19) due to additional contributions to the workers compensation scheme.

3 — Savings measures

Surpluses over the forward estimates are underpinned by a number of savings measures which will slow down the pace of expenses growth.  More aggressive expenses management responds to a weaker revenue outlook with expenses growth expected to track below revenue growth.

  • The Government will save $731 million in line with an election commitment to reduce expenditure on advertising, travel, consultants, procurement, IT, legal services, and public service senior executives.
  • A further $2.5 billion will be saved through other reforms to the public service with machinery of Government changes streamlining back-office operations.
  • While increasing expenditure by $100 million in the short term, the Digital Restart Fund is expected to drive efficiencies over the longer term.
  • Targeted expenditure reviews will drive further public sector savings across Government agencies.

4 — Urban Transport and Infrastructure

Despite no new announcements beyond the Government’s stated election commitments, investment in new urban transport and road projects remains at unprecedented levels. The Budget includes $55.6 billion to 2022-23 for road and transport initiatives.

  • $6.4 billion over four years to accelerate construction of Sydney Metro West.
    $2.0 billion (subject to successful completion of business case) to commence construction of the North South Metro Rail Link to Western Sydney Airport.
  • $4.1 billion over four years for delivery of the WestConnex Motorway including the M4-M5 link tunnel and Rozelle Interchange.
  • $3.3 billion over four years to continue planning or delivery of motorway links across Sydney including the F6 extension, Western Harbour Tunnel, Beaches Link, NorthConnex and Sydney Gateway.

5 — Drought Relief

The Budget recognises the challenges being faced by regional communities impacted by the ravages of drought. The Budget includes $355 million to extend funding for critical drought assistance measures for farmers and rural communities.

  • $185 million to continue existing drought assistance programs including transport rebates for fodder, stock and water and relief from Local Land Services Annual Rates.
  • $170 million for new water security measures including new ground water supply at Dubbo.
  • $350 million added to the Farm Innovation Fund to support low interest loans to build drought resilience and preparedness.

6 — Regions

The Budget has committed an additional $1.1 billion in for regional infrastructure projects from Restart NSW. This additional allocation will help progress delivery of a range of rail, road and other economic infrastructure to support regional NSW. In addition, funds from the Snowy Hydro Legacy Fund are being utilised to progress a number of business cases for critical regional infrastructure.

  • $1.5 billion over four years for the Pacific Highway upgrade program.
  • $1.2 billion over four years to continue work on existing Princes Highway projects.
  • $145 million for upgrades on the Newell Highway.
  • $38 million to progress the Regional Rail Fleet project (including the construction of a maintenance facility at Dubbo)
  • $113 million to progress digital connectivity, international airfreight hubs an special activation precinct projects identified under the Snowy Hydro Legacy Fund.

7 — Jobs, Education and Training

The Budget introduces a number of new initiatives as part of its commitment to education and training, including a record $21 billion for NSW schools, early childhood education, TAFE and VET. These initiatives are in line with its commitment to create 250,000 new jobs over the next four years.

  • The Government will provide $71 million over four years to fund its commitment of 100,000 new free TAFE and VET courses – of which 70,000 will be for traineeships and 30,000 for mature aged people re-entering the workforce. This means that over four years, the Government will provide 700,000 free TAFE and VET courses.
  • Following specific calls made by the Chamber, a new $80 million TAFE campus focussed on construction will be built in Western Sydney.
  • The Government will also fund two pre-existing high schools to become specialist vocational education schools in Western Sydney and the North Coast. Each school will offer training in the skills most needed by local employers.
  • Two more Productivity Bootcamps will be opened in Western Sydney and the South Coast.
  • $61.7 million is provided for eight new regional TAFE Connected Learning Centres.
  • The Government will invest $6.7 billion over the next four years to deliver 190 new and upgraded schools.
  • 4600 new teachers will be recruited across the state and every government high school will receive a full time psychologist and student support officer.
  • $500 million over four years to support non-government schools in building facilities to provide more student places in growing communities.