After its election in March this year, the new Coalition State Government in New South Wales took the decision to hand down its budget in September – rather than the traditional May – to allow it more time to consider its decisions.

The result, handed down this week, is the first Coalition budget in NSW since 1994.

Financial commentators, interest groups and journalists are always interested in a state budget and what it sets out to deliver. Although technically it is simply an instrument that Parliament gives to the Executive to spend money through appropriation, in reality it is much more important than just a financial statement. A state budget sets out the Government’s economic agenda and its general policy direction. This NSW budget is no exception.

NSW Treasurer Mike Baird’s first budget was especially important to get right following the Government’s historic victory in March with a strong mandate for change. He has inherited a weak economy which has been an economic basket case for a decade and one of the poorest performing economies in Australia. NSW has struggled with infrastructure investments and has been slow in a number of other economic reforms – especially around taxation. Today’s State Final Demand figures from the ABS confirmed it was the state with the slowest 12-month growth.

So what was the key theme of the budget? Essentially, it was a business friendly budget that invests in future capacity and will produce operating surpluses in the out years.

The surplus will be an average $200 million in the last three years of the forward estimates following a ‘temporary deficit’ of $718 million in the first year.

It delivers a strong – and much needed – infrastructure spend of $63 billion over the next four years. This has been partly achieved by reducing the operating deficit, cutting popular tax exemptions, increasing mining royalties (which will be paid for by the Commonwealth) and privatising assets to free up capital. It also takes an axe to the public service.

The new infrastructure spend is directed towards social infrastructure, including hospital upgrades, and important transport and road infrastructure – including a contribution to the North-West rail and South-West links.

It is freeing up capital by leasing out Port Botany to an operator (effectively a privatisation) which will drive efficiencies in the nation’s second largest port. The budget also leases out the desalination plant and delivers on the Government’s commitment to franchise Sydney ferries.

On the revenue side, it has taken the tough political decision of removing a stamp duty exemption for first home buyers, freeing up a billion dollars over four years. It has followed Western Australia’s trick of increasing mining royalties which will effectively be paid for by the Commonwealth in a reduction in the Mineral Resources Rent Tax. This is said to cover NSW’s exposure to the proposed carbon tax (although Commonwealth Treasurer Wayne Swan has claimed that this will backfire, resulting in a reduction of Commonwealth support to infrastructure projects).

On the savings side, it has set an ambitious target of cutting $6 billion from the public sector – with a reduction of 5,000 jobs over four years. It will close a number of prisons to address ‘surplus capacity’ and will try to introduce contestability in correctional services to reduce operating costs. Time will tell whether it will achieve these ambitious savings.

The new Government will welcome the tick of approval it has received from Standard and Poor’s – who reaffirmed the AAA rating – with some caution around the ability to achieve the savings target.

This budget has a number of things – increased infrastructure spends, touch revenue decisions, tough savings measures and some positive economic reforms.

Some may argue that the new Government needed to be tougher, but in this modern volatile political climate, the NSW Government’s first budget sets out an agenda that, although tough in places, is likely to be understood – and possibly even welcomed – by the electorate.

2011-09-08T05:34:01+00:00