Download 2016-17 Budget Paper No. 1 - Budget Statement

1. OVERVIEW
1.1 Introduction
The 2016-17 Budget delivers on the Government’s commitment to deliver quality services and infrastructure
throughout the State. This investment continues to increase employment opportunities and drive economic
growth.
The NSW economy continues to lead the nation, with growth in economic activity well above the rest of
Australia over the last year. Above-trend economic growth is expected to continue over the next two years.
New South Wales boasts the lowest unemployment rate of any state and has created more than 80 per cent
of all the full-time jobs added nationally in the last year. The 2016-17 Budget builds on this success and
demonstrates the Government’s commitment to driving strong, sustainable growth that benefits the whole
community.
The Government continues to deliver strong fiscal results. The 2016-17 Budget projects surpluses averaging
$2.0 billion over the next four years. Chart 1.1 sets out changes in the budget result since the
2015-16 Half-Yearly Review.
While stronger-than-expected revenue will deliver a substantial surplus for the State in 2015-16, weaker
growth in GST payments from the Australian Government and a moderating housing market will place
pressure on revenues over the forward estimates. A disciplined approach to controlling expenditure growth,
demonstrated over the last five years, will continue to ensure that the Premier’s and State priorities are
delivered sustainably and in a way that maintains the State’s triple-A credit rating.
Government is sensibly using the State’s balance sheet to support record levels of investment in
infrastructure, with the proceeds of asset recycling used to fund a range of infrastructure investments in
public transport, roads, hospitals and schools.
Chart 1.1:
Change in budget result since 2015-16 Half-Yearly Review
4,000
3,500
3,000
$ millions
2,500
2,000
1,500
1,000
500
0
2015-16
2016-17
2015-16 Half-Yearly Review
Budget Statement 2016-17
2017-18
2018-19
2016-17 Budget
1-1
Overview
1.2 Fiscal outlook
The 2016-17 Budget delivers a strong financial position for the State. The Government’s control over
expenditure growth and continued focus on driving efficiency allows for targeted new spending guided by the
Premier’s and State priorities. It will also help keep annual spending growth below long-term average
revenue growth, a target set out in the Fiscal Responsibility Act 2012. The Government has continued to
respond to changing revenue levels, while still investing in key initiatives. The Budget delivers surpluses over
the forward estimates, even as revenue pressures emerge in the mid years of the forward estimates.
Table 1.1 presents the key budget aggregates for the 2016-17 Budget.
Table 1.1:
Key budget aggregates
2015-16
Revised
Revenue ($m)
Revenue grow th (per cent pa)
Expenses ($m)
Expense grow th (per cent pa)
Budget Result ($m)
Per cent of GSP
2016-17
Budget
2017-18
2018-19
2019-20
Forw ard Estimates
73,772
77,005
76,948
77,479
80,656
6.0
4.4
(0.1)
0.7
4.1
70,363
73,292
75,622
76,097
79,043
5.4
4.2
3.2
0.6
3.9
3,409
3,713
1,326
1,382
1,613
0.6
0.7
0.2
0.2
0.2
Revenue growth is estimated to be 6.0 per cent in 2015-16, driven by the boost to transfer duty, land and
payroll taxes that flow from a stronger economy. Revenue growth is expected to moderate to an average of
2.3 per cent over the budget and forward estimates as growth in both transfer duties and the State’s GST
revenue decline and Australian Government National Partnership Payments fall. The State’s share of the
national GST pool is expected to fall to its lowest level since the GST was introduced. This is due to the
State’s comparatively strong economy lifting its capacity to raise state-own revenue relative to other states.
Also affecting revenues is the Government’s commitment, made in the 2014-15 Budget, to abolish remaining
business stamp duties listed under the Intergovernmental Agreement. Stamp duty on business mortgages,
unlisted marketable securities and transfer duty on non-real business transfers will be abolished from
1 July 2016. Increased revenue to come from transactions announced by the Government will boost revenue
from what is reported, once these transactions are completed.
Expenditure growth will be managed on an ongoing basis consistent with the Government’s track record.
Sound expense management enables the Government to increase spending in priority areas and invest in
productivity-enhancing reforms. Over the budget and forward estimates, average expenditure growth is
estimated to be 3.0 per cent. The Budget delivers growth in frontline services, with record budgets in the
health, education, family and community services and justice clusters. Ongoing measures to drive efficiency
in the public sector will support sustainable expense growth across the forward estimates.
Government investment in infrastructure is at a record level, supporting the delivery of roads, public
transport, schools and hospitals across the State (see Chart 1.2). The Government is continuing to
implement the $20 billion Rebuilding NSW infrastructure program, made possible by recycling the proceeds
of the partial lease of the State’s electricity network assets. These investments will support jobs and
economic growth, and help prepare New South Wales for the demographic and economic challenges
outlined in the NSW Intergenerational Report 2016.
1-2
Budget Statement 2016-17
Overview
Chart 1.2:
State-funded capital expenditure program (a)
16,000
Average: $12.1 billion
(b)
14,000
12,000
Average: $9.1 billion
$ m illions
10,000
Average: $6.1 billion
8,000
6,000
4,000
2,000
0
2008-09
Actual
2009-10
Actual
2010-11
Actual
2011-12
Actual
2012-13
Actual
2013-14
Actual
2014-15
Actual
Other State Funded Infrastructure Program
(a)
(b)
2015-16
Revised
2016-17
Budget
2017-18
Estimate
2018-19
Estimate
2019-20
Estimate
State Funded PPP Projects
The State-funded capital program includes expenditure in the general government sector, public transport public non-financial
corporations (PNFCs), Darling Harbour Live and the State-funded contribution to WestConnex.
Does not include capital commitments funded from transactions that are yet to be concluded, including Ausgrid, Endeavour Energy
and Land and Property Information.
While net debt is expected to be very low at $0.7 billion by the end of June 2016, net debt is projected to
reach 3.7 per cent of gross state product (GSP) by the end of the forward estimates. However, this does not
include the proceeds of transactions already underway. This is consistent with the State’s asset recycling
strategy, which supports investments in productive infrastructure that will help underpin future State
prosperity.
The successful conclusion of the State’s long-term partial lease of Ausgrid and Endeavour, expected in
2016-17, will further boost cash receipts into the State and will reduce net debt below the forecasts.
The Government remains committed to ensuring a strong and sustainable balance sheet, consistent with
maintaining a triple-A credit rating and the Fiscal Responsibility Act 2012. The Government is embarking on
an ambitious financial management reform to strengthen financial oversight, facilitate data driven decision
making, innovative service delivery and de-risking the balance sheet.
Chart 1.3:
General government net debt at 30 June (a)
30
25
$ billions
20
15
10
5
0
2015
2016
2014-15 Budget
(a)
2017
2018
2015-16 Budget
2019
2020
2016-17 Budget
Does not include proceeds from future transactions.
Budget Statement 2016-17
1-3
Overview
1.3
Economic outlook
New South Wales has a diversified service-based economy and remains well placed to continue to benefit
from the nation’s current transition away from mining. Asia’s increasing demand for services – such as
finance, education and tourism – is also helping to boost growth and employment in the State’s services
sector.
New South Wales continues to outperform the rest of Australia, with growth in NSW domestic demand more
than four times stronger than the national average. As a result, NSW GSP is estimated to expand by an
above-trend pace of 2¾ per cent in 2015-16.
Above-trend economic growth in New South Wales is expected to continue over the next two years, with
GSP forecast to grow at 3 per cent in 2016-17 and 2¾ per cent in 2017-18. The outlook is supported by
historically low interest rates, solid population growth and a lower Australian dollar.
Continuing strength in household consumption and dwelling investment means that state final demand (SFD)
is expected to grow by 3½ per cent in 2016-17, before moderating to 3 per cent in 2017-18. Non-mining
business investment, public investment and net overseas service exports are also expected to contribute to
growth over the next few years.
Chart 1.4:
State final demand
7.0
Forecast
Annual growth per cent
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
2010-11
2011-12
2012-13
New South Wales
2013-14
2014-15
2015-16
2016-17
2017-18
Rest of Australia
Government programs promoting employment and new dwelling investment, together with a record level of
infrastructure spending, will continue to contribute to these strong outcomes.
The relative strength of the NSW economy is drawing labour and capital into the State, particularly as
resources are being freed up from the mining investment boom. Net outward migration to other states is near
its lowest level since the late 1970s and the State’s share of net overseas migration has picked up to its
highest level since the early 2000s. Population growth of 1½ per cent is expected to continue over the next
two years, supporting growth in consumption, dwelling investment and employment.
The NSW labour market has performed strongly over the last year, with employment growing by 3.9 per cent.
The unemployment rate has declined to 5.2 per cent, currently the lowest in the nation, and the workforce
participation rate has picked up to near record highs. This is expected to continue over the next two years,
with employment forecast to grow by an above-trend rate of 1¾ per cent in 2016-17 and
1½ per cent in 2017-18. The unemployment rate is expected to gradually decline to 5 per cent over the next
two years.
These positive outcomes are within the context of a global economy that is forecast to improve modestly
over the next year or so and a national outlook that remains relatively subdued. While there is a downside
risk of weaker global and national growth, the low interest rate environment and the possibility of further
interest rate cuts pose an upside risk to domestic demand.
1-4
Budget Statement 2016-17