We are meeting on the land of the Gadigal people.
So I begin by offering my respect to their elders - past, present and emerging.
We are also gathering after a week in which both tragedy and terror struck NSW.
Too many families are in mourning. And our cohesiveness as a community has been challenged.
So let us all resolve to extend our solidarity to the families presently grieving.
And let all of us continue to dedicate ourselves to the task of making sure NSW remains the most united, safe, prosperous and welcoming state in the Federation.
McKell Institute Chairman Walton; McKell Victoria Executive Director Rebecca Thistleton - welcome to the Premier State; my partner in fiscal rectitude, Finance Minister Houssos; all my Parliamentary colleagues; members of the McKell institute.
You have done me a great honour by inviting me here today. So let me repay that honour by speaking about the Minns Government’s forthcoming budget.
Or as I think of it: our highly anticipated next album. The follow-up to our sensational September debut - ‘Budget #1!”
That album was filled with tracks like ‘investing in the wages of essential workers not suppressing them!’ As well as ‘fixing our schools and hospitals - not neglecting them!’ And that breakout hit of the summer - ‘Cutting debt - not adding to it!’
Now - I concede: Taylor Swift’s latest bangers might still be topping the charts in June.
And even though I am not expecting an ARIA - let alone a Grammy - for our next production, I am sure I will at least please us ardent fans of Bill McKell.
Because his spirit is indeed leavening the next state budget.
What Premier McKell knew about this state’s true character was that New South Wales was the premier state: not because of the prodigious scale of its ambitions; but because of the preternatural depths of its resilience.
This state has always decided its own destiny. We choose our future by reinventing ourselves, especially in the wake of a great crisis.
For Bill McKell’s governments, that meant choosing to seize the moment of post-war reconstruction to build a more equal future. With homes, schools and hospitals fit for the heroes who were returning home, having vanquished the fascists abroad.
For governments governing in our time, choosing our future means coming-back from a once-in-a-century global pandemic. And the once-in-a-generation cost-of-living crisis it led to.
It means making decisions today so that the next generation has homes to call their own tomorrow.
So we again have world class schools, TAFEs and Universities to fuel our future prosperity.
And so we have an energy system that is stable enough, cheap enough and predictable enough for businesses to make long-term investments, but is clean enough to help stave off the horrors of global heating.
This is the fresh start NSW Labor promised New South Wales last year. This is the fresh start we are busy delivering.
A lot done. A lot to do.
One year into our four-year term, it remains true that too many families are still doing it too tough.
I can say to them - we are making progress.
Teachers’ pay is up - to the highest in the country - and teaching vacancies are down. 10,000 public school children are getting 50,000 extra hours of class time every week.
Lessons in lieu of cancellations. The first antidote to a decade of declining education outcomes.
We are getting on with the job of slashing the elective-surgery backlog. By surging investment into the surgeries of our public hospitals, more than 11,900 patients have been spared further pain.
No longer waiting for vital operations like hip-replacements and knee reconstructions. Free to live a good life in this amazing country.
As for housing: 12 councils are close to agreeing with us on a plan to build more homes in neighbourhoods people want to live in. Close to public transport. Close to public schools and hospitals. Near parks and other public spaces.
Helping make sure Sydney stays a city that can afford to house its grandchildren.
Caring For the Public’s Dollars
Pleasingly for me -
We have made this progress because of the Minns Government’s persistence with fiscal discipline.
This truth remains self-evident:
Prudent management of the public’s money leads to better results for the public.
Exhibit A -
We can pay our essential workers more because we are paying our creditors less.
By slashing the state’s gross debt by $14.8 billion, we avoided $2 billion in interest payments. Every cent saved: ploughed back into our essential services.
Exhibit B -
We are cutting waste. We found $13 billion of savings in our first budget. Money not being spent on the public’s priorities. Money that could be.
For example, we got rid of an accounting trick gone wrong. The billions being squandered in the Transport Asset Holding Entity has made way for actual investment in public transport. The rapid heavy rail repair programme, the Sydenham to Bankstown Metro conversion, and the Metro-West project. Real transport projects. Not fake ones. No accounting tricks needed.
Finally, Exhibit C - my favourite - reform.
We are axing bad policies. The policies that are the reason why families need to pay more for life’s essentials than they should.
Bad policies like privatisation.
The deals which made Sydney the most tolled city in the world; that made electricity more expensive; and stopped cities like Newcastle from reinventing themselves for the future.
These are just the first steps in our plan to rebuild essential services and deliver the support families need.
But there is more work to do.
More work to be done to solve the housing crisis.
More work to be done to reverse a decade of declining education standards.
More work to be done to cut emergency department waiting times.
And more work to be done to crack down on wasteful spending.
The next state budget in June is the next opportunity to take a big step towards building a better NSW.
But first we need to wrestle with quite the fiscal setback: an absurd GST decision. Its repercussions for the budget. Its reverberations on the state’s credit rating.
Let me give you a spoiler alert: neither is good.
One Step Forward. Two Steps Back.
Friends -
Every year the Commonwealth Grants Commission carves up the GST between the states and territories. This year NSW lost out when the Grants Commission spun the GST wheel of fortune.
The Commission decided NSW and Queensland could go with less in order for Victoria, South Australia, Tasmania and the territories to get more.
Why?
Because the Commission thinks we can take the pain. They think we will keep earning the high coal royalties we did after Russia’s invasion of Ukraine.
They also think we could increase property taxes.
And they think service delivery is cheaper in NSW now! Especially since Kiama has been reclassified as a major city! So is Stanwell Park in the Illawarra. And Coffs Harbour is no longer ‘outer’ regional NSW. It is now ‘inner’ regional NSW.
Just in case you are wondering - I think the Commission’s decision is absurd. I think their reasoning is fanciful. But the impact of their decision on the budget is huge. Every family is affected.
Last month I promised I would reveal the full impact of the Commonwealth Grants Commission’s decision. The Treasury has since tabulated it.
So I am here to honour that pledge.
I regret to report that the Commonwealth Grants Commission’s decision will cost NSW $11,902,000,000 over the next four years.
So you know -
The Commission’s decision will see NSW lose more revenue than we did during Covid-19.
Put simply -
Losing $11.9 billion is the equivalent of losing 19,000 healthcare workers.
$11.9 billion is enough to hire 19,000 teachers, or 16,000 police officers for the next four years.
$11.9 billion is how much we spend on mental health, TAFE and the NSW Police Force combined every year.
NSW has never had such a sudden fall in GST. Our share has fallen to 87 cents for every dollar paid in GST in this state.
Now some states want to portray NSW as being greedy. The big bad state that will not share.
That’s not true.
For every dollar that Victoria will give to the smaller states next year, NSW will give upwards of four.
This can’t continue. There is a better system for dividing the GST between the states and territories.
It is to divide the GST according to population share. With the federal government topping up the smaller states to make sure they are no worse off.
So, while the Premier and I will be constructive and patient, we will also continue to argue the case for change nationally. All while we respond locally.
Beginning by dealing with the reverberations the GST rip-off will have on the state’s remaining AAA credit ratings.
The AAA
Friends.
Shortly after we were elected last year, the NSW Treasury told me that the sharp acceleration in spending, combined with rapidly rising debt levels, endangered the state's remaining AAA credit ratings.
The previous government’s last-minute spending spree piled more pressure on those ratings than back in 2020 when S&P downgraded NSW.
Last year we found $13 billion in savings in our first budget. It helped us hold onto the AAA credit rating. But the Commonwealth Grants Commission $11.9 billion GST rip-off sends us back to square one. It almost certainly will lead to a downgrade.
So you are clear about where I stand -
I think protecting family budgets takes precedence over the AAA credit rating. And I think having the flexibility to respond to the risk of recession is more important than the AAA in the current economic climate.
Last year, Fitch cut the United States AAA credit rating to AA+. Moody’s downgraded the US’s outlook from ‘stable’ to negative.
As a result, NSW’s credit rating is currently higher than the world’s most powerful government.
In fact we are one of only 21 sub-national governments worldwide to still have a AAA credit rating.
So just like the United States is having to balance its credit rating with its responsibilities to keep its economy growing, its people in jobs, and to invest for its future: NSW needs to too.
What We Will Do
In June, NSW will see the Minns Labor Government respond to the GST rip-off calmly and methodically.
Our strategy hinges on focussing on the state’s long-term interest. Translated into principle, that means:
Keep doing our bit to fight inflation; keep helping families rebuild their purchasing power; keep fixing our essential services, like schools and hospitals.
Make sure our balance sheet is ready to support NSW; just like the Minns Labor Government did last year. Especially as the balance of economic risk veers away from high inflation, and veers towards low-to-no real economic growth.
Those are our principles. Here is how they translate into action:
You should expect us to take our time finalising the key agreements we have with the Commonwealth.
I’m talking about agreements like the one that funds our public hospitals. Or the agreement that funds our public schools.
So much rides on them.
So getting them done right is more important than getting them done quickly. And if that means waiting until after the budget before we strike an agreement, then we will wait until after the budget.
We are willing to be the last state standing if it means NSW gets its fair share.
You should also expect us to double down on cutting the state’s level of gross debt. Necessary after COVID-19. Vital after our predecessors’ final year $27 billion spending spree.
An insurance policy for the next economic shock. With the added benefit of slashing our interest payments.
Finally, you should expect us to make modest investments in the ‘must have’ policies that cannot wait.
‘Must-have’ policies to counter the housing crisis.
‘Must-have’ policies to fix our schools and hospitals.
‘Must-have’ policies to prevent crime.
‘Must-have’ policies to rescue the energy transition.
‘Must-have’ policies to help families with the cost-of-living pressures they currently face.
These ‘must-haves’ are our budget priority. But that means the ‘nice-to-have’ initiatives - such as putting a roof on Accor Stadium - will have to wait.
Every family has had to make household budget decisions when costs rise. Every small business has to make difficult choices about their spending when revenue falls. A state government is no different.
What We Will Not Do
That is what you should expect us to do. Here’s what you should not expect us to do.
You should not expect us to send a chill through the family of every essential worker in NSW by re-imposing the cruel wage freezes, imposed by the previous Coalition government.
It’s our police officers who safeguard the public when we need them.
It’s our paramedics who treat patients regardless of the chaos around them.
It’s our nurses who care for the most vulnerable when they are needed most.
It’s our prison guards who stand watch over those who disrupt our community.
The previous government’s wage freeze wasn’t only cruel, but also short-sighted.
It’s obvious to most that mandating permanent pay cuts for essential workers would re-trigger staff shortages: the same staff shortages we still struggle with to this day.
So that’s why I say -
Imposing a wage freeze is bad economically. It is terrible for service delivery. And it is wrong morally.
An essential worker deserves the same right to a bargain for pay and conditions as every other working Australian.
Friends.
In 1941, in laying out his plans to make steady social and economic progress amid the crisis of the war, Bill McKell said:
"I propose to advance a program in which loose promises and grandiose but impossible conceptions have no place."
That same spirit of realism guides the Finance Minister and me as we get set to present our second budget on June 18.
We have learnt -
That writing two state budgets nine months apart is a fine way to lose friends and influence no one!
But we are soldiering on.
Determined to make sure the public’s money is spent on the public’s priorities. Calmly and methodically preparing a strategy that is right for the times.
And just in case you review our second album poorly: take comfort in knowing that work begins on writing our third album immediately.
Thank you very much for taking the time.