NSW Budget 2016: Surpluses ahead but GST payments to collapse

NSW Treasurer Gladys Berejiklian has unveiled budget surpluses worth more than $8 billion over the next four years as the state continues to grow strongly and the federal government rewards it for selling assets.

But as a consequence, NSW is facing a historic collapse in GST payments from the Commonwealth, equating to $10.8 billion in lost revenue by 2019-20.

In her second budget on Tuesday, Ms Berejiklian also revealed a $1 billion boost to NSW schools capital works expected to deliver 1100 new classrooms due to "unprecedented enrolments".

They include new primary schools at Smalls Road, Ryde and North Kellyville, a senior campus for Cammeraygal High School in Crows Nest and planning for more classrooms at several other schools.

Spending on the maintenance backlog will also be doubled to $330 million over two years.

The budget also contains $1 billion for new suburban trains and $2.7 billion towards the Sydney metro line in 2016-17.

But Ms Berejiklian was for the second year in a row forced to defend a lack of housing affordability measures in the budget beyond $262 million for the Housing Acceleration Fund designed to fast track new home releases.

"We're doing everything we can for first home buyers and for anyone who wants to get into the market for the first time or any families who want to scale up," she argued.

"The key thing for us as a state government is to continue to focus on supply."

Ms Berejiklian noted there were 70,000 housing approvals in NSW in the 12 months to April.

"That is record levels from the last few decades," she said.

Ms Berejiklian said the budget surplus would be $3.4 billion this financial year, before growing to $3.7 billion in 2016-17,  $1.3 billion in 2017-18, $1.4 billion in 2018-19, and $1.6 billion in 2019-20.

Above trend growth is expected to continue over the next two years, with Gross State Product forecast to increase by 3 per cent next financial year and 2.75 per cent in 2017-18.

However, NSW's share of the net national GST pool is forecast to fall to an all time low, from 31.3 per cent to 25.9 per cent in 2019-20.

Ms Berejiklian told Parliament that NSW is forecast to receive just 81 per cent of our GST share per person in four years – a historic low, down from 95 per cent this financial year.

"Next year NSW will endure the biggest single-year loss due to a change of relativity for any state since the GST began," she said.

The Treasurer said that if NSW had kept its GST share it would have been $10.8 billion better off than forecast in the budget.

This means NSW will continue on the path of reining in public sector expenses growth. Over the next four years average expenses growth is forecast to fall to an annual 3.4 per cent.

Meanwhile, revenue growth is forecast to fall from 6 per cent in 2015-16 to 4.1 per cent in 2019-20.

Despite the current Sydney property boom, residential stamp duty receipts are expected to moderate over the next four years, growing at an average 2.4 per cent per year.

Stamp duty receipts are forecast to rise from $8.9 billion this financial year to $9.8 billion in 2019-20.

As previously announced, the government will continue a 1.5 per cent "efficiency dividend" across most government departments for a total saving of $1.4 billion by 2019-20.

This year's budget includes a $994 million payment in 2016-17 from the Commonwealth under its asset recycling incentive scheme. The payment follows the $10 billion privatisation of electricity company Transgrid.

The government is anticipating a total of $2.2 billion in incentive payments to 2019-20 following the long term lease of electricity firms Ausgrid and Endeavour Energy, but this has not been factored into forward estimates.

Net debt is expected to be $663 million, or 0.1 per cent of Gross State Product.

"Today is a very positive day for the state of NSW," Ms Berejiklian said.

"We have the strongest budget position in the nation and a set of economic conditions that are the strongest in the nation."

In previously announced measures, state funded investment in infrastructure will average $12.1 billion a year over the next four years.

The government will spend $3.8 billion creating 7000 new prison beds.

Spending on domestic violence programs will be doubled to $300 million including on GPS monitoring of offenders.

A new 4 per cent stamp duty surcharge and 0.75 per cent land tax surcharge will be imposed on foreign property buyers.

The stamp duty surcharge applies immediately, while the land tax surcharge starts on January 1, 2017.

The measures are forecast to raise the government $1 billion over four years.

They are designed to partially offset a revenue loss of $1.8 billion from the abolition of three state taxes – duty on business mortgages and unlisted securities and transfer duty on non-real business assets.

The sole housing affordability measure in the budget is the allocation of $262 million from the Housing Acceleration Fund to projects in southwest and western Sydney.