New South Wales presents a safe budget in light of an economic slowdown

On Tuesday, September 19, 2023, Daniel Mookhey, the Treasurer of New South Wales, presented the first state budget under the Labor party’s governance since 2010. Inflation remains a significant economic challenge for the state.

The budget is expected to result in a deficit of $7.8 billion in the fiscal year 2023-24 but is projected to improve annually, with surpluses anticipated every year thereafter. An $844 million surplus is anticipated in 2024-25, projected to reach $1.5 billion by 2026-27.

As of 2023-24, the gross debt has surged to $132 billion, with a forecast to reach $173.3 billion by 2026, a decrease from the earlier estimate of $188.2 billion. However, debt levels are projected to rise to $187.5 billion by 2025-26, with the interest on the debt expected to increase to $7 billion due to higher borrowings and rising global interest rates.

The unemployment rate in the state currently stands at 3.6%, and a peak of 4.75% is predicted for early 2025. Mookhey indicated a slowing economy, with a slight deceleration in economic growth. Nevertheless, robust population growth and high overseas migration are expected to bolster consumer spending.

Key Budget Highlights:

• Infrastructure Program: A $5 billion initiative encompassing enhancements and expansions in public transport ($72.3 billion), hospitals ($13.8 billion), and schools ($9.8 billion).
• Natural Disaster Support: Allocation of $4 billion for aiding in natural disaster relief.
• Essential Services Fund: $3.6 billion dedicated to ensuring pay rises for nurses, midwives, healthcare workers, and teachers.
• Housing and Infrastructure Plan: A $2.2 billion plan including $60 million for Build to Rent trials.
• Renewable Energy: Allocation of $1.8 billion for Renewable Energy Zones and the establishment of the Energy Security Corporation.
• Local Manufacturing and Electric Vehicles: $480 million to support local manufacturing of renewable energy and low-carbon products, and $263.5 million to roll out electric vehicle infrastructure.
• First Homebuyers Assistance Scheme: $300 million to expand the NSW First Homebuyers Assistance Scheme.
• Essential Housing Package: $224 million for social and affordable housing under the Essential Housing Package.

Government Grants:

Upon assuming office earlier this year, the Minns Government imposed a hold on numerous grants programs. The major grants in this budget primarily focus on clean energy and regional industries.

Revenue Measures:

The State Budget introduces significant changes to stamp duty and land tax as outlined in the Treasury and Revenue Legislation Amendment Bill 2023 (Amendment Bill) presented by Treasurer Daniel Mookhey. These changes align with the government’s broader objective of returning the state to a surplus in the forthcoming years.

• Removal of Corporate Reconstruction and Corporate Consolidation Exemption: The Amendment Bill eliminates the corporate reconstruction and corporate consolidation exemption, replacing it with a 90% concession on eligible transactions. This could impede corporate restructures in New South Wales.
• Reduction in Landholder Acquisition Threshold for Private Unit Trusts: The landholder acquisition threshold for “private unit trust schemes” is reduced from 50% to 20%, likely resulting in more trust acquisitions being subject to landholder duty.
• Reduction in Linked Entity Threshold: The threshold for determining whether an entity is a landholder is reduced from 50% to 20% for all entities, impacting landholder duty assessments.
• Increase in Fixed and Nominal Duty: Fixed or nominal duty charges for various transactions will see a modest increase from $10 – $500 to $20 – $750 from February 1, 2024.
• Removal of Motor Vehicle Registration Duty Exemption for Electric Vehicles: The exemption from motor vehicle registration duty for certain zero and low emissions vehicles will be abolished for vehicles registered for the first time on or after January 1, 2024.
• Amendments to the Land Tax Management Act 1956: Amendments include restricting land tax exemption to individuals owning at least a 25% interest in the property, and this change will take effect from the 2026 land tax year.

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