Overview

The level of economic activity was higher than expected at the time of the 2024-25 Budget, despite softer growth during 2023-24. The labour market has been more resilient than expected, with the unemployment rate rising only gradually to 3.9 per cent in November 2024.

Looking ahead, economic growth has been downgraded in 2024-25, reflecting weaker growth in late 2023‑24. However, growth is expected to gradually, but sustainably, improve over the course of the year.   

Total revenue is projected to be 1.2 per cent higher than 2024-25 Budget projections across the four years to 2027-28. This is due to:

• Federation Funding Agreements, which will be offset by corresponding expenditure increases 
• an increase in expected GST
• increases in payroll tax. 

The operating position is projected to improve over the forward estimates in line with the Government’s fiscal repair strategy. The projected deficit in 2027-28 has reduced to $1.3 billion, from $1.5 billion at the 2024-25 Budget. 

The improvement has been achieved by prudent management of expenses. Expense growth is projected to rise at an average of 1.8 per cent per year over the five years to 2027-28, which is broadly consistent with the 2024-25 Budget and significantly below the 9.7 per cent average annual expense growth between 2018-19 and 2022-23.

As at 18 December 2024, wage agreements have been reached with more than two-thirds of the NSW public sector. These investments will support the attraction and retention of essential workers, and a strong public sector workforce. 

The infrastructure program is projected to total $118.3 billion over the four years to 2027-28, broadly in line with the forecast at the 2024-25 Budget. 

The Government is committed to maintaining debt at sustainable levels. Since the 2024-25 Budget, the June 2028 projection for net debt has improved by $2.3 billion to $137.2 billion.

Economic Outlook

The level of NSW Real Gross State Product (GSP) for 2023-24 exceeded expectations from the 2024-25 NSW Budget due to upward revisions in 2022-23 activity. However, growth in 2023-24 was weaker than projected, despite strong support from public demand. Aggregate growth was also aided by historically high population growth. 

Despite the positive annual result, state final demand slowed at the end of the financial year due to high interest rates and inflation constraining household spending. The 2024-25 GSP growth forecast has been lowered to ¾ per cent, reflecting weaker momentum in late 2023-24 and a slower recovery expected for household spending.

The labour market has been more resilient than anticipated, with the unemployment rate rising only gradually to 3.9 per cent in November, remaining historically low. Meanwhile, inflation has continued to ease, assisted by lower petrol prices and government cost-of-living measures.
The unemployment rate is expected to rise further, peaking at 4½ per cent. This gradual softening in the labour market will contribute to easing underlying inflation. 

Momentum in economic activity is anticipated to improve gradually over the course of 2024-25 as cost-of-living pressures ease. 

Risks to the outlook include geopolitical tensions, potential US-China trade issues, and persistent inflation pressures that could weigh on growth.
 

Economic Performance and Outlook^(a)

^{(a) Forecasts are rounded to the nearest quarter point and are annual average per cent change, unless otherwise indicated. 2024-25 Budget forecasts in parenthesis where different. Forecasts completed prior to publication of the 2023-24 Annual State Accounts by the Australian Bureau of Statistics (ABS).
(b) June quarter, per cent.
(c) Per cent change through the year to 30 June. The assumptions for net overseas migration are consistent with assumptions in the 2024-25 Australian Government Budget.}

Source: ABS and NSW Treasury

Fiscal Position and Outlook

The NSW Government continues to focus on strengthening the State’s finances so that steady growth in service delivery can be maintained while addressing fiscal challenges and uncertainty in the revenue outlook.

This involves controlling expense growth and strengthening the State’s balance sheet by maintaining sustainable levels of debt.

Over the forward estimates to 2027-28, the operating position is projected to improve as the Government’s responsible budget repair continues.

The projected deficit in 2027-28 has reduced to $1.3 billion, from $1.5 billion at the 2024-25 Budget. This is due to continued discipline in the management of agency expenses, improvements in GST grant revenue and payroll tax forecasts partially offset by higher workers compensation and interest expenses.

In the short-term, a $458.6 million reduction in taxation revenue forecasts in 2024-25 and higher projected insurance, workers compensation and interest expenses continue to exert pressure on the budget result which is projected to be a deficit of $4.98 billion in 2024-25.

The 2024-25 deficit is approximately half of the $10.57 billion deficit recorded in 2022-23 and the $9.68 billion deficit for 2023-24 projected in the 2024-25 Budget.

Expense growth is projected to average 1.8 per cent per year (up by 0.1 per cent since the Budget) and will remain well below the 9.7 per cent average annual expense growth over four years to 2022-23. 

Since the 2024-25 Budget, total revenue is projected to be 1.2 per cent higher over the four years to 2027-28. Despite this improvement, revenue is forecast to grow slower than the economy over this period, reflecting weak growth in GST, royalties and sales of goods and services revenue, and a decline in interest income alongside expected falls in interest rates.

The State’s infrastructure program (including State-Owned Corporations) is projected to be $118.3 billion over the four years to 2027-28, which is a decrease of $1.1 billion since the 2024-25 Budget driven by changes in delivery of transport projects, including Sydney Metro.

Since the Budget net debt has fallen by $2.3 billion to $137.2 billion by June 2028. Gross debt is projected to be $199.9 billion by June 2028, unchanged since the Budget. 

Expenses Outlook  

Since the 2024-25 Budget, total expenses are projected to be 1.2 per cent higher in 2024-25, and expense growth is projected to rise at an average of 1.8 per cent per year over the five years to 2027-28.

Key drivers of this upward revision  include expenses associated with Federation Funding Agreements, which are offset by higher Australian Government revenue in future years, and higher expenses due to changes to insurance and compensation scheme valuations.

Expense measures partially funded through Federation Funding Agreements include: 

• Transport for NSW 
  Higher expenses associated with the reprioritisation and reprofiling of existing programs and additional forecast revenue from the Australian Government for expenditure eligible under the Disaster Recovery Fund Arrangement ($776.3 million to 2027-28). In total, these expenses have increased by $984.9 million to 2030-31, offset by higher forecast Australian Government revenue
• National Access to Justice Partnership
  The Government has signed a new National Access to Justice Partnership agreement with the Australian Government for additional funding for frontline legal assistance services. The Australian Government will contribute an additional $594.6 million over three years to 2027-28, with the NSW Government to invest an additional $19.5 million to 2027-28
• Reconnecting River Country Program and Resilient Rivers Water Infrastructure Program
  Higher expenses to support the Murray and Murrumbidgee River Constraints Measures and the Murrumbidgee Irrigation Urban Channel Pipelines Project, fully offset by funding from the Australian Government
• Murray Darling Basin – Sustainable Communities 
  The Government has provided funding to deliver the Australian Government’s Sustainable Communities Program to support Murray Darling Basin communities impacted by water recovery measures ($176.0 million expenses to 2027-28), fully offset by Australian Government revenue.