Dr Brendan Rynne, KPMG Chief Economist comments on the NSW Budget
The underlying economic premise of this budget is one of turning the corner and focusing on a more prosperous and progressive future. Themes of productivity reform, investment, embracing technology and preparing for the return of open borders and international engagement are found throughout the Budget Papers; a welcome example of constructive policy thinking which we hope will engender competitive tension with other jurisdictions and see numerous States adopt similar plans.
That is not to say the NSW Government does not have fiscal and economic challenges ahead of it. We note that the State’s net debt position is more than doubling in next four years, while growth in employee expenses will now see public sector wages on a per capita basis in NSW overtake Victoria by the end of the forward estimates period.
The NSW Government’s philosophical position on several key policy settings, including taxation arrangements for electric vehicles, payroll taxes and stamp duty reforms, is relatively progressive in terms of its peers. These differences will mean NSW will become more attractive for businesses to expand operations there. While it might be argued these changes only impact cost structures at the margin; it is at the margin that businesses decide if, when and where they will make incremental investments.
One of the interesting features of the State Budget papers is the expectation that the NSW economy will, in effect, experience a growth pause in 2022-23, with real GSP forecast to expand by only 1 percent in that year (as compared to 3¼ percent in the year before and after). There are a few hints in the budget papers as to the cause of this softness, including “the extension to HomeBuilder … will provide further support for the residential construction industry into 2022” and “the end of tax incentives will become a constraint on investment growth after 2022-23”.
Simply, the current suite of Commonwealth and State fiscal stimulus measures is expected to drag residential and business investment forward, and in the absence of any additional stimulus packages aimed at lifting economic activity in 2022-23, economic growth in that year will be weaker as a consequence.
Infrastructure spending of $108.5 billion over the next four years will assist in bolstering any short-term economic weakness, but more importantly will also contribute to the longer-term productivity platform for the State. Positive medium-to-longer term productivity-enhancing reforms include: investment in creating more efficient transport networks; investments enabling better functioning health systems; improvements to early years education and policy reforms to enable higher female participation in the workforce.
The key now for the NSW Government is to ensure these good policy intentions are implemented effectively and with some urgency, which will ensure strong outcomes delivered for the people of NSW.