NSW BUDGET 2019: Is debt too high or is it manageable?

Ross Greenwood speaks to NSW Treasurer Dominic Perrottet who is confident in the state budget, dismissing concerns over the accumulation of debt as the $802 million surplus is lower than expected, with net debt expected to balloon.

Ross Greenwood:  Today, a couple of state government budgets were handed down. One in South Australia, which is a dramatically different looking budget as compared with New South Wales, the most powerful state in the nation and the one also right now with the lowest unemployment rate. New South Wales is no doubt has been fueled by the rise of property prices and the stamp duty revenue that’s come through into the government coffers during this time.

Do bear in mind that the biggest source of revenue for the New South Wales government ongoing is payroll tax. It is an important area that now there’s been changes even there. Stamp duty revenue is forecast to be down $10.6 billion. Right now, the New South Wales government has assets, no debts effectively of $8.8 billion, but some are suggesting that it is going to rise over the course of the next four years, to some $38.6 billion.

This is a big change because a lot of that money is going to be spent on infrastructure. It’s in total said to be some $93 billion according to some reports, but there is a warning out there and that comes from Moody’s. Moody’s which is the credit rating agency and bear in mind that New South Wales is one of the only very few states in the world that has a AAA credit rating. Moody says that if the growth rate in the state’s debt burden is unaddressed, beyond the four year period of 2023, it could put pressure on the state’s standalone creditworthiness. Let’s get to the man who is presiding over all of that, the treasurer of New South Wales Dominic Perrottet always great with his time. Dominic, many thanks for your time.

Interview: Dominic Perrottet, NSW, Treasurer

Dominic Perrottet: No worries, Ross. Good evening.

Ross Greenwood:  To address Moody’s concerns about the growth rate of the state’s debt, what will you sell to try and reduce the state’s debt between now and the next four years?

Dominic Perrottet: Well, Ross to start with, if you look at the negative net debt position first, its incredibly healthy. We believe that our debt position is manageable, affordable and sustainable. One of the initiatives we had in last year’s budget, was a setting out of a generation a debt retirement fund that currently has a bounce of around $10 billion, we expect that to grow to about $88 billion over the next four years and that provides us with the opportunity to retire debt. We will always look at financing options and as they come up and if there are a couple of options on the table and that would be a matter for the government at some stage. The more we see it today, if you look at that debt position at it’s worst case in that final year, that is still as a percentage of JSP around 5% compared to other states around the country it’s the lowest in fact at 5%, we’re talking half the debt whilst at the same time, delivering double the amount of infrastructure.

Ross Greenwood:  Okay. Would you sell say Wisconics? Would that be on the agenda perhaps?

Dominic Perrottet: I don’t want to make any judgments on that Ross. The government at this stage doesn’t have any plans in that space. The $93 billion over the next four years is completely funded and we’re very much focused on delivering that infrastructure over the next four years.

Ross Greenwood:  The shape of your government, however, was really modeled by Mike. When Mike came to power and it was picked up by G20 nations around the world, by the federal government, by other states. This was about trying to recycle assets, in other words, to create assets, to build them up and then to sell them on, to gain the money to build more public infrastructure. As a result, you say you don’t always look at things but the truth is to be able to get the budget in the sort of state, in the phase of falling revenues, stamp duty revenue especially, surely that is going to be very much front and foremost in mind to try and recycle some of the assets that you’ve created.

Dominic Perrottet: Yes, and Ross we continue to do that and we recycle a number of property assets. If you look at the assets based at the state, it’s very much in line with what you’re saying. It’s not about just simply selling assets and the asset base declining. We are swapping old assets up for new assets and the net worth of our state will grow to a third of a trillion dollars over the next four years, and that means rather than earning a half pole outside your home, we are transferring those assets into assets that make a difference to people’s lives. That’s more hospitals and a misused budget, we have 40 new and upgraded hospitals over the next four years, 190 new and upgraded schools, metro lines and motorways, all these infrastructure projects are getting rolled out and they are projects that improve people’s lives, that’s what we’re focused on.

Ross Greenwood:  Do you believe that the spending on infrastructure over these next four years, and you say there is $71.7 billion over the period to 2022/23 but there is actually other money already committed. In regards to that, do you believe that can create the jobs that is going to likely be lost out of the residential construction industry given the fact that now, many of the clients are disappearing, the high rise are stopping being built right now in the phase of the falling property practices?

Dominic Perrottet: Well, Ross that is a very good question. If you look at the softening in the New South Wales economy, a lot of it has been in the housing sector, we’ve seen prices come off and construction slow, but what has really helped has been that public investment and infrastructure. If you look at that economic growth off the back of it, you would have to World Bank, and the IMF. The Reserve Bank governor has come out recently, the number one thing that governments should be doing to drive economic growth. Is to be building public infrastructure. We are really seeing that infrastructure at about half 10.80 economic growth over the next two years. In fact, I was out with the premiere last week at a metro station that carries at tunnel boring machine type two, and I was talking to one of the staff there and he said to me that he was previously working. I mean the housing construction guy but that slide. Now he’s working at one of those metro projects. For our state to have the lowest unemployment rate at 4.6% and more recently it was the lowest ever been on record, the jobs growth off the back of our infrastructure investment is really driving our economy forward.

Ross Greenwood:  One thing is also, you’ve had to revise downward with your estimations of JST revenue, now this I presume, is at least a nod to the fact that retail spending is slowing down and also as a result of that, maybe the share coming out of the federal government is also going to lower than previously anticipated.

Dominic Perrottet: In the most recent federal budget, we had to write, it wasn’t that obvious but the pull of the JST had reduced so we wrote down about $2.3 billion in JST as part of this budget on top of the $10.6 billion over of the last two years in stamp duty. That’s why one of the initiatives we had in this year’s budget when we’re seeing other states and interestingly enough like the states have reduced their wages for public service off, and I have kept those wages there at 2.5%. We want as a state number one employer, we want to make sure that our public services pay well. We want to help drive consumption and we can’t divorce the fiscal, the budget position from the boarder economic consequences. Consumption is down that affects our states, but despite all of that, how we are still having average surpluses of $1.7 billion over the next four years and that inoculates us for many further I think revenue write-downs or events that come our way such as the drought.

Ross Greenwood:  There’s a few bits and pieces in regards to cost of living measures. There’s a doubling of the active kids’ vouchers, there’s baby bundles, there’s dental checks, there’s KAPS on cars for people as well, there’s also initiatives to employ 4,600 teachers, 5,000 nurses and midwives and this goes on and on and drought funding which is also there. This is an important aspect of this so there is additional spending that’s going on. Does that match up with those revenues because obviously, stamp duty revenue is down $10.6 billion, is a big wack as you are trying to juggle to the budget overall?

Dominic Perrottet: Ross, I think we’re in a very solid position given where we’ve come from. Today, last year or the last two we used to write down how that significant amount in stamp duty revenue to write down JST to going through the most recent election with a number of significant commitments that yield that line, and still be in a strong budget position is a testimony to our financial management. When we came to office in 2011 where we legislated the Fiscal Responsibility Act that maintains how it spends growth below long term revenue growth that’s 5.6%, this year it was– over the last year it’s been 5%.

What we’ll see over the next four years on average revenue growth will be around 3.2%, expense growth about 2.7% and so that puts us in a very good position going forward. We maintain that expense discipline but importantly as well, we’re giving back. Unlike other states were increasing taxes at a time when the economy is slowing. We’re reducing tax, we’ve taxed $5 billion in taxes have over the last four budgets and when it comes to the cost of measures like you’ve raised, the active kids rebate, which we’ve doubled. A number of those initiatives, we’ve given back around $2 billion over the last two budgets so we want to ease the cost, we want consumption to grow and at the same time, whether it’s tax cuts to our business, we want them to invest, business confidence is also a concern for us doing forward over the next 12 months that’s a national issue. We want to give confidence to our businesses to invest and employ more people and that’s how we’re reducing that tax burden by increasing it.

Ross Greenwood:  Then, of course, a lot of the other states, that we’ve spoken about in the last week or so, have put on luxury car taxes, they have increased excises on either hydrocarbons or other coal mining or whatever it might be. What you’ve done here also is that you have actually raised thresholds for payroll tax from 750,000 to 900,000 and eventually $1 million, which means that there always going to be some businesses, smaller businesses out there, that will miss out on having to pay their payroll tax.

Dominic Perrottet: Well, that’s right Ross and governments can be lazy and plug budget holes with increasing taxes but that has broader impacts on the economy and, for example, just this week I was out in St. Mary’s at a windows manufacturing business and I met a gentleman there who has taken on an extra apprentice now because of the payroll tax cuts we’ve made and that apprentice who has come on a 16-year-old girl who’s come out of school, has benefited from our C3 type courses in joinery. The reality is you can have one eye on the budget but there are broader economic consequences that stem from that and that’s why here in New South Wales we see the national economy slowing. We still want our state to be the engine room so we’re increasing that investment in public infrastructure but at the same time cutting taxes and giving more back to families across our state with our cost of living measures. We don’t run surplus for the sake of it. It’s not our money, it’s taxpayers money. If we can give back and help stimulate the economy, that’s all we’ll continue to do.

Ross Greenwood:  Dominic Perrottet, is the New South Wales Treasurer. The biggest state in this nation and as he says, one of the powerhouses, if it’s going okay, the rest of the country is generally in pretty good shape as well, and Dominic we appreciate your time here on Monday News this evening.

Dominic Perrottet: My pleasure Ross. Have a good night.

Image source: 2GB