Budget Statement 2019-20 Budget Paper No. 1 Circulated by The Hon. Dominic Perrottet MP, Treasurer STATEMENT OF THE SECRETARY The 2019-20 Budget Papers are prepared in accordance with the requirements of the Public Finance and Audit Act 1983, the Government Sector Finance Act 2018 and the Fiscal Responsibility Act 2012. The 2019-20 Budget continues the State’s focus on strong financial management, balance sheet optimisation and outcome budgeting. The information in Budget Paper No. 3 Budget Estimates is organised around 38 State Outcomes, including the presentation of key financial data. The Budget reflects Machinery of Government changes announced in April 2019. The financial statements in Budget Paper No. 3 Budget Estimates incorporate the Administrative Arrangements that commence on 1 July 2019. The suite of 38 state outcomes also align with the new arrangements going forward, superseding the 46 outcomes in last year’s Budget. Best available information The Estimated Financial Statements have been prepared to reflect best estimates of existing operations, the impact of new Government policy decisions, and year-end projections provided by agencies based on end-April data. They have also been prepared to take into account other economic and financial data available to Treasury up to 12 June 2019, including Commonwealth Government funding decisions announced in the 2019-20 Commonwealth Budget. Any estimates or assumptions made in calculating revenues, expenses, other economic flows, assets or liabilities are based on the latest information available at the time. Assumptions are detailed in Appendix A2 of this budget paper, under the headings Material Economic and Other Assumptions and Summary of Other Key Assumptions. Professional judgement The prospective nature of the Estimated Financial Statements means it is necessary to apply professional judgement in their preparation. That judgement includes an informed assessment of the most likely economic and financial outcomes including spending and revenue profiles. Differences between underlying assumptions and eventual outcomes can reflect the reality of an uncertain operating environment and the impact of many variables over which the Government has little or no control. In my opinion, the Estimated Financial Statements have been properly prepared in accordance with the Statement of Significant Accounting Policies and Forecast Assumptions and the methodologies used to determine those assumptions are reasonable. Michael Pratt AM Secretary, NSW Treasury 18 June 2019 TABLE OF CONTENTS Chart, Figure and Table List Focus Box List About this Budget Paper ........................................................................................... i Chapter 1: Budget Overview 1.1 Delivering on our promises, maintaining budget discipline ...................... 1 - 1 1.2 Economic outlook – returning to trend by 2020-21 .................................. 1 - 2 1.3 Strong fiscal discipline without raising taxes ........................................... 1 - 3 1.4 The NSW Generations Fund ................................................................... 1 - 6 1.5 Delivering the Government’s priorities for everyone ................................ 1 - 7 Chapter 2: The Economy 2.1 Policy stimulus to facilitate a lift in economic growth ............................... 2 - 2 2.2 New South Wales, the jobs capital of Australia ....................................... 2 - 4 2.3 Public and business investment to support the construction sector ........ 2 - 4 2.4 Faster income growth expected to lead consumer recovery ................... 2 - 7 2.5 Solid export demand despite global and national challenges .................. 2 - 10 2.6 Risks to the economic outlook ................................................................. 2 - 11 Chapter 3: Fiscal Strategy and Outlook 3.1 Strong fiscal strategy today, delivering for tomorrow ............................... 3 – 1 3.2 Fiscal discipline is the cornerstone of New South Wales’ Budget ........... 3 - 3 Chapter 4: Revenue 4.1 A continuing program of tax reductions ................................................... 4 - 1 4.2 2019-20 Budget revenue measures ........................................................ 4 - 2 4.3 General government revenue .................................................................. 4 - 3 4.4 Taxation revenue ..................................................................................... 4 - 6 4.5 Grant revenue .......................................................................................... 4 - 10 4.6 Other revenues ........................................................................................ 4 - 15 Chapter 5: Expenditure 5.1 General government recurrent expenses ................................................ 5 - 1 5.2 General government capital expenditure ................................................. 5 - 11 5.3 Expenses by functional categorisation (COFOG-A) ................................ 5 - 13 5.4 Recurrent expense measures statement ................................................. 5 - 18 Budget Statement 2018-19 Chapter 6: Managing the State’s Assets and Liabilities 6.1 Reforming the State’s balance sheet ....................................................... 6 - 1 6.2 Net debt remains low despite changing accounting standards ............... 6 - 2 6.3 Highest net worth of all States and Territories ......................................... 6 - 5 Chapter 7: Commercial Performance in the Broader Public Sector 7.1 Overview of the broader public sector ..................................................... 7 - 1 7.2 Reforms and initiatives of government businesses ................................. 7 - 2 7.3 Non-financial public sector ....................................................................... 7 - 5 7.4 Public financial corporation sector ........................................................... 7 - 7 7.5 Dividends and tax equivalent payments .................................................. 7 - 8 Chapter 8: NSW: Better Lives, Better Futures 8.1 Four pillars to improve the lives of citizens, now and into the future ....... 8 - 1 8.2 The Government wants New South Wales to be a great place to live, work run a business and raise a family ......................................................... 8 - 2 8.3 Setting up New South Wales for future success ..................................... 8 - 3 Appendices A1. Statement of Finances ....................................................................... ...... A1 - 1 A2. Statement of Significant Accounting Policies and Forecast Assumptions A2 - 1 A3. Classification of Agencies ................................................................. ....... A3 - 1 A4. 2018-19 Budget – Outcome and Summary of Variations ......................... A4 - 1 A5. Tax Expenditure and Concessional Charges Statement ................. ........ A5 - 1 B. Fiscal Risks and Budget Sensitivities ....................................................... B - 1 C. Contingent Assets and Liabilities ....................................................... ...... C - 1 D. Historical Fiscal Indicators ................................................................. ...... D - 1 E. Performance and Reporting Under the Fiscal Responsibility Act 2012 .... E - 1 F. Economic Scenario Analysis ............................................................ ........ F - 1 Glossary Budget Statement 2019-20 CHART, FIGURE AND TABLE LIST Page Chapter 1: Budget Overview 1 Economic growth returning to trend and the labour market to remain tight Chart 1.1 1-3 Key general government sector 2019-20 Budget aggregates Table 1.1 1-3 Budget result: 2019-20 Budget compared to the 2019 Pre-election Budget Update Chart 1.2 1-4 General government revenues and expenses as a share of GSP Chart 1.3 1-4 General government net debt compared to other States and Territories, as at June 2019 Chart 1.4 1-5 The projected NGF balance is growing over the next 10 years Chart 1.5 1-6 Chapter 2: The Economy 2 Economic performance and outlook Table 2.1 2-1 New South Wales boasts the lowest trend unemployment rate Chart 2.1 2-2 Job vacancies at an all time high, suggesting strong labour demand Chart 2.2 2-2 Rising female participation Chart 2.3 2-3 Females more responsive to changes in labour demand Chart 2.4 2-3 Large pipeline of work to support near-term housing activity Chart 2.5 2-5 Commencements suggest bigger drop in construction activity looming Chart 2.6 2-5 Non-residential construction to partially offset dwellings drag Chart 2.7 2-5 Private sector delivering a large share of publicly-led infrastructure Chart 2.8 2-5 Interest rate cuts should support a stabilisation in house prices Chart 2.9 2-6 Auction clearance rates have shown some improvement Chart 2.10 2-6 Record pipeline of private non-residential building Chart 2.11 2-7 Private non-residential building approvals remain elevated Chart 2.12 2-7 Household discretionary consumption has pulled-back Chart 2.13 2-7 Falling house prices are weighing on consumer spending Chart 2.14 2-7 Household spending has been rising faster than incomes Chart 2.15 2-8 Housing costs have become a material drag on inflation Chart 2.16 2-8 Higher productivity growth is the key to driving per capita income growth Chart 2.17 2-9 Agricultural exports hit by persistent drought conditions Chart 2.18 2-11 Education and tourism temporarily slowing Chart 2.19 2-11 Chapter 3: Fiscal Strategy and Outlook 3 Fiscal objective and targets Table 3.1 3-2 Credit ratings