Address to The McKell Institute

I acknowledge the Gadigal people upon whose lands we gather today. I pay my respects to Elders past and present.

Hello McKell Institute members and friends.

Last year I described your Institute as my agora praeferenda.

Turns out that brand did not catch on. Not one person has repeated that phrase back to me since I uttered it.

So, this year, I am dubbing the McKell Institute as Australia’s locus classicus for sensible progressive economic debate.

I am sure your new branding is destined to travel further!

Acknowledgements
Ashley Tsacalos and the team at Clayton Utz: thank you for your civic-minded generosity and your gracious hospitality and for launching a campaign to name the streets of Sydney after yourselves.

Chairman Daniel Walton: always a delight to see you.

But today’s special shoutout is for Ed Cavanough.

Ed -You have chosen to bring your ‘Executive Director of the McKell Institute’ era to an end.  Fare thee well.

Congratulations on your three years of impressive service.

Commiserations on having to spend more time in Adelaide.

The Oil Shock & The NSW Economy
Friends, the NSW Budget is 33 days away.

But in the 152 days since I delivered the Half-Year Review in December, a lot has changed.

Consider this - 152 days ago the typical working family had just seen their wages rise, their interest rates fall, and their grocery prices finally begin to level out.

All in time for Christmas.

Since then, that same working family have felt their wallets burn as fuel prices have risen by 50 per cent. The RBA has added about $415 to their monthly mortgage. And their grocery bill is no cheaper.

That family did not expect to be living through the greatest oil shock since the 1970s last December. In truth: NSW Treasury did not either.  

That oil shock is the ‘sound’ surrounding Budget 2026.

It’s the feedstock for higher inflation. A cause of higher interest rates. The reason why so many businesses and their customers are feeling less confident about the future today than they were in December.

I cannot tell you when the acute phase of this oil shock will end. Few can.

But I can tell you this: Even if the war in the Middle East ended today, petrol prices are not falling tomorrow. Oil markets will take time to normalise. If they ever do.

So, with the Middle East conflict continuing, inflation rising, uncertainty unbounded, and working families under pressure: I have decided to release our main economic forecasts one month early.

You should see what the NSW Treasury is seeing in real time.

Especially when our Half-Year Forecast has been eclipsed.

Especially because the times are so volatile.

Economic forecast
So how do we expect the NSW economy to fare? In short: less well than before the latest War in the Middle East.

I need to report to you that in June we will lower our forecast for economic growth significantly.

Instead of the NSW economy expanding by 2.5% in real terms next year, as we expected in December: the NSW Treasury expects real growth of just 1% in the year ahead.

The NSW Exception
Attentive budget watchers will notice a slowdown more pronounced in NSW than elsewhere in the Federation.

Why is that?

The simple reason is that higher inflation has led to higher interest rates which is lowering consumption spending - the point of the RBA’s increased interest rates.

But the more complicated explanation is this:

Higher interest rates hurt working Australians in every state, but they hurt working Australians more in this state.

Let me explain the NSW exception: why we are different from the other states. It is to do with the size of our mortgages.  

The typical working family in NSW borrowing to buy a new home today is likely to borrow $873,000. But a family taking out a mortgage in Victoria - Australia’s next biggest state - will borrow about $677,000.

That is 28% less.

That is why NSW fares better when interest rates fall. The cost paid to service a mortgage drops more than elsewhere.

The corollary is: that those same mortgages cost more to service than when interest rates rise.

Revenue forecasts
That is why higher interest rates hit the disposable incomes of families in NSW harder than in the rest of the Commonwealth.

Their impact is also bigger on the state’s taxation revenues than elsewhere.

The reason is because our state taxation revenues correlate heavily with the property cycle. Which in turn is heavily correlated with interest rates.

Put simply - higher interest rates lead to lower state revenues.  

So, on June 23 expect NSW Treasury to downgrade the state’s forecasted tax receipts substantially.  

Falling stamp duty and lower land taxes are by far the biggest reasons why we expect to collect less tax than previously projected.

Stamp duty collections are likely down by about $5 billion over the forward estimates. We expect land tax receipts to drop by around $3 billion during those years.

Our other tax bases, like payroll tax will make up some ground as they are less affected by interest rate movements.

As for the GST: It remains a sore point. Especially after the Commonwealth Grants Commission cut our share of the national pie to the lowest ever.

Private investment
There is one more detail in our economic forecasts worthy of your attention.

It is to do with private investment in NSW. It’s rising. In fact: in Budget 2026 we are set to increase our forecast levels of private investment.

For a productivity-starved economy: that is satiating.

For a state which has seen growth in public demand exceed growth in private demand over the past few years: this inversion is satisfying.  

Rising private investment is all to do with the rise and rise of renewable energy. With AI related investments - like in data-centres - making a cameo appearance.  

In fact, the number of renewable energy projects now under construction, combined with all transmission lines and grid connections currently being fixed, extended or upgraded, explains why the NSW economy is set to avoid a recession.

NSW is home to this investment boom because NSW is (and was) the first state to have truly grasped that reaching Net Zero is a sound economic strategy.

I notice that the One Nation Party disagrees. I also note that the Federal Liberal Party has recently decided to agree with One Nation and oppose Net Zero.

But I have no idea if the NSW Liberal Party agrees with the Federal Liberal Party, which agrees with the One Nation Party.

The Member for Vaucluse could end this uncertainty by declaring whether she is for or against the state’s legislated Net Zero targets.

Is Barnaby Joyce correct? Or is Matt Kean?

Personally - I am not willing to risk a fall in private investment by siding with Mr Joyce. Nor should the Member for Vaucluse.

Because there is little doubt - to campaign against NSW’s Net Zero targets is to campaign for a NSW recession.  

Budget challenge
Friends -

Be it AI, Net Zero, Tariffs or the Oil Shock: NSW is encountering all these trials and tribulations with a better set of books than we had three years ago.

Debt is not going to hit $187 billion on June 30 this year. Like our predecessors intended. It is likely to be about billions lower than that.

Expenses are not growing on average by the 6.5% per annum posted by the NSW Liberal Party over their 3 previous terms in government.

Let alone the 25% they spent in their election-eve budget.

Instead, our audited accounts show that nominal expenses grew by just 1.8% last financial year.

By way of comparison - 1.8% expense growth is the lowest level of expense growth of any mainland state in the Federation. It is lower than the Federal Government’s expense growth. It is substantially lower than the NSW long-term average.

It is also the result of hard reforms. Like fixing a broken workers compensation system. Replacing a busted police death and disability insurance scheme.  Removing hundreds of Senior Executives from the Public Service.

As well as squeezing $13 billion out of our cost base after the Finance Minister led our comprehensive spending review in 2023.  

Budget 2026
All these decisions were hard. But all these decisions were necessary.

They are the reason why NSW is today on firmer financial ground.

Capable of budgeting to meet the challenges of the future - not just paying for the mistakes of the past.

So let the word go forth:

Budget 2026 is about building a state working Australians can afford.

Our strategy is simple: Relief and reform.

Relief for the immediate cost-of-living pressures working families are facing today.

Reform to curb their fundamental causes for tomorrow.  

In Budget 2026 - and beyond - we will show how we are building a high wage economy.

Why that is vital for working families at a time of high interest rates.

And why the NSW Liberal’s plan to freeze working people’s wages again is the wrong choice for NSW.

In Budget 2026 - and beyond - we will continue to confront the worst fallout from a decade of privatisation.

Showing why decisions like returning the Northern Beaches Hospital to public ownership strengthens the public’s control over public assets.  

Why selling more public assets to private monopolists again would be the wrong choice for NSW.

In Budget 2026 - and beyond - you will see how we are making a record investment in public hospitals.

How we continue to back public education.

The next steps we intend to take to combat the housing crisis.

Why we can afford a $100 billion-plus infrastructure program.

How we will invest in kids with a disability.

The Road Ahead
Ultimately you will see a pragmatic and sensible budget delivered by a practical and sensible government.  

A Government hungry to deliver on the people’s priorities.

Determined to make sure New South Wales remains the premier state to raise a family.

The best state to get an education. Or start a business. And make a contribution.

The state where hard work pays off.

Where people are free to convert their work into wealth - no matter where you came from.

After all - Budgets are a means to end.

The point of the Minns Government’s fourth budget is to make progress.

To take the next step forward so all the opportunities that arise from our common wealth are available to all of us.

Thank you.