It’s the boom that just keeps on delivering.
Once again, the real estate fervour that has swept the nation’s most populous state has delivered a bonanza to the New South Wales Government.
Not that you can find the exact number in the accounts delivered this morning by Treasurer Dominic Perrottet.
So embarrassing are the riches bestowed upon the state by stamp duties flowing from what many believe is a property bubble, the revenue this year was wrapped up into “transfer duties” that included duties from the sale of some state assets such as the poles and wires businesses.
It was only after repeated requests that Treasury officials quietly distributed the numbers on photocopied pages.
Stamp duty on residential property soared almost 10 per cent to $6.8 billion.
It’s forecast to keep on growing, by around 6 per cent each year for the next three financial years. That’s a mighty big chunk of the state’s total revenue of $78 billion.
NSW Treasurer Dominic Perrottet is forecasting a $4.5 billion budget surplus. (AAP: Paul Miller)
You can understand why the Government has become so shy about property. No Treasurer or Premier wants to project the idea they simply are coasting along on the coat tails of a boom. And to be fair, the Berejiklian government is managing the state’s boom time finances with aplomb.
By resisting the urge for reckless spending for political gain, NSW has found itself not only with a strong economy and an operating surplus, but with a balance sheet that shows not just zero debt, but money in the bank.
On every count, NSW is outperforming its peers; economic growth, employment, debt and revenue.
But just as Western Australia had its mining boom, NSW’s rude financial health largely is driven by housing construction, in part due to a series of drastic cuts in official interest rates which now sit at a record low of 1.5 per cent.
It is a boom that increasingly is worrying everyone from the Reserve Bank to the Federal Treasury, especially when combined with our world record levels of household debt.
Since 2012, when the Reserve Bank began slashing rates, NSW housing completions have risen from 28,000 a year to 60,000 now. If the government forecasts prove correct, the construction boom will peak next year at around 75,000 completions.
Unlike WA, which emerged from the greatest resources boom in history with its finances in a shambles, the Premier hopes that infrastructure projects — funded through asset recycling rather than a massive uptick in debt — will continue to drive the economy through to the next decade.
GST tug-of-war looms with WA
On that front, it is clear the Berejiklian Government has decided to not stand idly by and watch while WA cries poor over its share of the national Goods and Services Tax take.
The former Barnett government deliberately pumped its mining royalties through the boom, raising them to exorbitant levels to ensure the Federal Government’s mining tax delivered almost nothing, fully aware the tactic would smash its GST revenues down the track.
Smash revenue, it did, with WA’s revenue share falling to around 0.3 relative to its population share.
Now the Berejiklian Government has joined the fray. It too is calling for a reform of the system, arguing that NSW’s strong economic performance will be penalised under the current regime which will see its share drop to 0.79 relative to population.
It now wants a per capita split in GST revenue. With 32 per cent of the population, it wants that proportion of the total take returned. If that occurred, it reckons it would be $14.7 billion better off.
Essentially, however, this is a tactic to head WA off at the pass at the upcoming Productivity Commission inquiry into the GST split up.
There is plenty of cash to splash around in NSW with a budget surplus of $4.5 billion. (Thinkstock: iStockphoto)
The new Treasurer has continued the mantra of his predecessors, Premier Gladys Berejiklian and former premier Mike Baird, hammering home the Government’s credentials on financial management.
Costs must grow slower than revenue. New spending must be offset by cuts. Infrastructure spending will be funded from asset sales. Back office staff will be cut to fund increases in frontline staff in key areas of health, education and law enforcement.
That fiscal rectitude could come in handy sooner than the forward estimates predict.
With both Moody’s and Standard & Poor’s now highlighting the growing risks that exorbitant housing prices and household debt have placed on the economy, Mr Perrottet may not be able to count on the windfall gains for too much longer.