NSW Treasurer Daniel Mookhey is laying the groundwork for a revamping of state government finances, writes Christopher Joye.
At a time when the global economy could be heading for a recession, and Australia risks following suit, it is particularly disappointing that some of our state governments have done such an awful job preparing a buffer for this downturn.
Egged on by the Reserve Bank of Australia promising not to raise interest rates until 2024, the states were encouraged to borrow and spend aggressively. But it turned out that rates did, in fact, start rising at an unprecedented pace in May last year. And given the strongest inflation in more than 30 years, it has proved to be the worst possible time to be building infrastructure.
But even after NSW lost its AAA rating in December 2020, and the cost of debt servicing rocketed, the Liberal government did not want to use the NGF to pay back a cent of debt. In 2021, it was advised by TCorp and NSW Treasury that it would be better off gambling this money on global markets in the hope that equities would climb while rates remained low for a long time.
Both states forecast that their debts will rise to $226 billion by 2026, which means the annual interest bill using current 10-year interest rates would be almost $10 billion a year each.There is clearly a case that Victoria is the worst-run state in the country. Since Dan Andrews’ government came to power in 2014, Victorian government debt has increased 194 per cent, substantially more than any other big state, including NSW , Queensland and Western Australia .
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