A careful budget for NSW's challenging economic times ahead

"Today's NSW Budget treads carefully given the challenging economic times ahead for the State's economy," said Helen Waldron, NSW State Head at the national employer association, Australian Industry Group.

"The Budget paints a worrying but realistic picture of the NSW economic outlook – with growth slowing, unemployment rising and household spending weakening. The inflationary impacts of the conflict in the Middle East, and tightening monetary policy, will impose a heavy burden on the NSW economy and households.

"Today's Budget takes a responsible approach to this economic setting, balancing fiscal sustainability against relief measures. The centrepiece is a range of cost-of-living measures for transport costs, which recognise financial pressures on households. Importantly these measures are temporary, reflecting the severe but short-term nature of the inflationary crisis.

"This temporary relief is complemented by longer-term measures focused on larger challenges for NSW and Australia as a whole – housing, infrastructure, skills and regulation. Reforms to planning arrangements and support for building innovation and productivity are particularly key to improving direly-needed new housing supply.

"Commendably, the NSW Government has exercised fiscal responsibility, ensuring that growth in expenditure is kept at manageable levels. This is especially important given the revenue risks confronting the NSW Budget as the housing market cools. The Budget forecasts gross debt to stabilise at around 20% of GSP, which will be challenging to achieve in coming years but sets an important marker for responsible fiscal management.

"However, the challenges facing the NSW economy over the coming year cannot be ignored. We do not know how long or deep the economic impacts of the Middle East crisis will prove, but we can be sure more difficult times are coming. Careful policy decisions will continue to be required in the months ahead,' Ms Waldron said.

Media Enquiries:
Gemma Daley – 0418 148 821

NSW economic outlook

The NSW economy is expected to slow materially over the coming year. NSW Treasury now forecasts gross state product to grow at 1.0% p.a. in 2026-27, a significant reduction from the 2.5% p.a. forecast at the last half-yearly review. The State's employment growth is expected to slow, unemployment will rise to 4.5%, and while wages growth will rise to 3.5% p.a. this is insufficient to keep pace with a 3.75% forecast for inflation.

Several factors are contributing to this downturn in the NSW economy. The energy crisis resulting from the conflict in the Middle East is placing upwards pressure on inflation, weakening consumer confidence and spending power. Recent interest rate increases by the RBA compound the effect on household spending, particularly as NSW households have higher exposure to housing debt relative to the national average. A slowdown in dwelling investment will also drag on economic activity in the state.

NSW budget fiscal outlook

The 2025-26 deficit has come in at $3.0 billion, around $400 million better than forecast in last year's Budget. After the $2.3 billion deficit in 2026-27, the Budget is expected to return to surplus in 2027-28. This will be achieved by controlling government expenses, which will only grow at 1.8% in 2025-26. Expenses will increase by 5.4% over the coming year as temporary cost of living measures are deployed, but will return to the mid 2s from 2027-28.

NSW Government revenues have been revised down, primarily due to expectations of falling housing prices. This is forecast to reduce revenue from stamp duty and land tax by $8.4 billion over the four-year forward estimates. This will be partially offset by increases in NSW's share of GST revenues (of $5.6 billion over the forward estimates) resulting from changing economic relativities between the states. Nonetheless, the NSW budget is and will continue to be highly exposed to revenue risks from developments in the property market given the state’s high reliance on property taxes.

Gross debt will be $178.5 billion by June 2026, equivalent to around 20% of gross state product. Based on current spending projections, state debt will stabilise at this level for the remainder of the decade.

Cost of living relief budget measures

• A temporary reduction in the weekly toll cap to $50 in 2026-27 (down from the previous $60 weekly cap).
• A $100 cut on private vehicle registration (excluding caravans and trailers) in 2026-27 ($80 off registration for motorcycles).
• Providing commuters with relief through an Opal fare freeze, maintaining 2025 prices.
• The Government will also remove administration fees associated with toll notices, with the fees to be switched off from July as part of the continued shift to making tolling communications digital‑first.

Regulatory budget measures

• FuelCheck – $2.6 million to upgrade FuelCheck and enforce accurate fuel price reporting.
• $7.2 million for energy‑efficiency upgrade schemes, particularly in regional NSW.
• $557.1 million in interest‑free loans and discounts to install energy technologies under the NSW Home Energy Saver Program.
• Subsidised vocational training for in‑demand skills through the Smart and Skilled program.
• Travel and accommodation support for apprentices and new‑entrant trainees who travel more than 120 km round trip for training.
• Major pay increases for nurses and midwives, with increases of between 16 per cent and 28 per cent over three years.
• Free Working with Children Checks for volunteers, including students on professional placement, potential adoptive parents and authorised carers.
• Free National Disability Insurance Scheme worker checks for volunteers.
• A 0.5 per cent land tax early‑payment discount where the full amount is paid before the notice of assessment due date.

Infrastructure and housing budget measures

• $6.5 billion over ten years for the New Electric Bus Program to reduce reliance on imported fuels, meet the needs of a growing community and provide cleaner ways to travel.
• New investment of $2.4 billion for Parramatta Light Rail Stage 2.
• Establishing the Development Coordination Authority to operate as a one‑stop shop from 1 July 2026 to coordinate and streamline agency inputs on development applications and planning proposals.
• Expanding the Pre‑Sale Finance Guarantee program to target registered, not‑for‑profit community housing providers and smaller residential developments, particularly in regional areas.
• Surcharge purchaser duty relief to support investment in retirement villages and build‑to‑rent properties.
• An expression of interest to establish a Modern Methods of Construction manufacturing facility which will scale prefabrication, automate processes, reduce build costs, accelerate delivery of high‑quality homes and improve sustainability.
• $32.3 million for the Building Commission to improve housing productivity through a new building approvals system in the NSW Planning Portal, creating a Modern Methods of Construction Regulatory Framework to decrease the cost of construction, pilot an enhanced dispute resolution process and the use of AI technology to improve and streamline licensing.

Media Enquiries:
Gemma Daley – 0418 148 821