NSW scores ratings win from Moody’s
The Minns government’s plan to cut NSW’s $145 billion debt bill has been given cautious backing by the reaffirmation of the state’s top-tier AAA credit rating by Moody’s analysts.
A month after Treasurer Daniel Mookhey handed down his first budget and a plan to reset the state’s finances, Moody’s analysts on Tuesday said the state’s financial outlook is stable but warned successive deficits have left it hamstrung in responding to economic shocks.
“There’s a lot of headwinds in the state,” Moody’s senior analyst John Manning told The Australian Financial Review.
A turnaround plan for the state’s finances unveiled by NSW Treasurer Daniel Mookhey has been backed by ratings analysts. Peter Rae
“We think debt affordability is solid, but as the state balances its infrastructure spending … and tries to contain operating deficits to get back to surplus, we’re seeing our projected debt burden grow.”
NSW has the highest debt levels in the country after Victoria, with gross debt on track to hit $145 billion by the end of the financial year. The debt load is predicted to hit 12.6 per cent of gross state product and $186 billion by June 2027.
Mr Mookhey, who came to office promising fiscal restraint and to slow spending even as the state continues a $180 billion infrastructure building spree, found more than $13 billion in budget savings by reprioritising spending and cutting commitments including Destination NSW spending and a $900 million stadium rebuild.
As a result, the treasurer was able to predict an improved surplus of $844 million by 2024-2025 and a marginally improved debt position that was 1.4 percentage points lower than at the 2023 pre-election budget update.
But successive deficits racked up by the previous Perrottet government had limited the state’s ability to respond to future economic shocks. Mr Mookhey target of a surplus in 2024-25 will be difficult to achieve given debt levels are rising, the analysts said.
They predicted NSW debt burden – a measure of net debt and indirect debt as a percentage of revenue – would rise to more than 150 per cent by 2026, which is outside the parameters of the AAA rating.
“Such a large and prolonged deterioration in NSW’s fiscal metrics will constrain the state’s capacity to respond to future shocks,” Mr Manning and analyst Gene Fang conclude in a research note.
A weaker-than-expected recovery in property turnover and stamp duty collections could wreak havoc on the state’s finances. The government’s last budget projected stamp duty revenues would recover by about 19 per cent to more than $12 billion a year by 2027. If that doesn’t happen, the state’s debt burden could rise by 10 per cent, the analysts said.
“Although the state can absorb higher borrowings … NSW’s path to a lower debt burden through asset sales is unlikely to occur given the newly elected government’s stance against privatisation, which implies budget repair can only be achieved through fiscal consolidation and over an extended period,” the analysts said.
Mr Mookhey said his campaign to reset the state’s finances was only in its early stages and more initiatives were coming that would drive debt lower.
“The Minns government has begun the task of repairing the budget, reducing debt and rebuilding our essential services, as well as supporting families and providing targeted cost-of-living relief,” he said.
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