23 Nov 2020

NSW went into COVID-19 from a strong position, contributing over 34% of GDP to the Australian economy, and the NSW Budget will see the state emerge in a continued position of strength compared to Australian state counterparts.

Urbis’ Chief Economist Richard Gibbs stated; “the NSW Budget strategy is reflective of a state with superior COVID-19 health outcomes, with a focus on the structural side of the economy for enhanced competitiveness, and not simply the stimulus side and recovery process.”

This is a very different situation to the structurally driven shock we faced in the early 1990s

Richard Gibbs View Profile

With the State’s health situation and COVID-19 tracking abilities buttressing the economy, the NSW public sector bolstered fiscal resilience by contributing 1.8% in overall growth in the last 12 months. These two factors counterbalanced a 15% decline in household consumption growth, which constitutes 60% of gross state product.

“This is a very different situation to the structurally driven shock we faced in the early 1990s, with COVID-19 incurring more of a cyclical impact and fall in demand,” commented Mr Gibbs.

Despite a deeper economic contraction than the 90s, a stronger recovery is expected due to government led support measures, as outlined below.

The NSW Budget is the perfect partner to the Commonwealth Budget’s focus on the ‘demand side’ of the economy, ensuring a boost to the ‘supply side’ at a state level.

The NSW Government and Treasurer Dominic Perrottet describe the Budget as a two-pronged approach, with one aspect being the health response and the construction, redevelopment and expansion of social infrastructure such as primary healthcare facilities, hospitals and healthcare precincts.

The discreet economic response constitutes the second key aspect of the NSW Budget, which targets measures in relation to planning, tax, health and education regulatory change and reform, in addition to economic infrastructure. These steps are designed to provide productivity beyond COVID-19 recovery, positioning the state even more competitively.

An announcement was also made to phase out stamp duty, which has been declared a barrier to housing mobility and property investment for years. Several measures should ease the transition, including price thresholds which stop large landowners all switching at once to land tax and causing a drastic fall in revenue.

There remain questions around how the stamp duty reform will be rolled out, which will underpin its success. For instance, what will be the impact of the disincentive to invest in commercial property, which has the highest rate of 2.6% of unimproved land value per year? In contrast, residential owner occupiers will be charged the lowest rate of $500 plus 0.3% of unimproved land value per year. Our other insights on stamp duty reform can be viewed here

At this stage the proposed stamp duty reform is more about signaling

Nathan Stribley View Profile

Urbis’ Future State Director Nathan Stribley stated; “at this stage, the proposed stamp duty reform is more about signaling that the tax has to go, but that is still an important move. There is now a line in the sand.”

The stamp duty reform is designed to form part of the government spending enabled recovery, which prioritises a boost to economic activity and jobs, as outlined below.

The NSW Budget outlines a $107 billion dollar program for infrastructure, which focuses on the Sydney metropolitan area, with highlights including:

  • Sydney Metro West: $10.4 billion
  • Hospital and health infrastructure: $10.7 billion
  • Western Sydney airport: $9.2 billion
  • Sydney Gateway project linking Sydney Airport to Port Botany: $2.2 billion

The Budget also shares the love with regional NSW, providing $1.8 billion for jobs and the infrastructure acceleration fund. This includes $300 million for the acceleration of fixing country bridges and $185 million for Parkes Special Activation Precinct, which will link to inland rail and potentially an international freight airport.

Transformational infrastructure development across regional NSW will receive a $4.2 billion boost via the Snowy Hydro Legacy Fund, with several projects already underway. Also welcome, is the $100 million provided to deliver metropolitan grade internet to the regions.

Lastly, but far from least, School Infrastructure NSW will receive $7.7 billion.

With regards to social housing, $812 million was announced for a range of projects and programs, some of which were previously announced. This stands in stark contrast with Victoria, which is providing $5.3 billion to support this much needed asset class.

It will be interesting to see what happens in NSW with rapidly deteriorating social housing stock

Rachel Trigg View Profile

Urbis’ Director Rachel Trigg commented; “it will be interesting to see what happens in NSW with rapidly deteriorating social housing stock and little new investment going towards it – while need becomes ever more acute”.

The NSW Budget also appears to have missed the opportunity presented by renewable energy, despite an Infrastructure Investment Bill promoting four precincts as renewable energy zones. Instead, the Budget provides state outcomes which make NSW a preferred investment option for exploration and mining.

It’s great to see the NSW Government is clearly trying to reduce delivery risks

Princess Ventura View Profile

Overall, the NSW Budget clearly supports a range of infrastructure project types and scales but has priority focus on transport investment. The temptation to announce new mega projects has also been resisted and instead has focused on existing projects with an identified need. This is consistent with the commitments to new health infrastructure.

Urbis’ NSW Regional Director Princess Ventura stated, “it’s great to see the NSW Government is clearly trying to reduce delivery risks and is recognising the constraints in a very hot Australian infrastructure market.”

Both Australia and NSW have a AAA credit rating, which it will be important to maintain from a global investment perspective. Further support is offered by the State Government to promote NSW as an attractive investment option through its offshore Trade and Investment network in key international markets.

Payroll tax incentives – both a temporary reduction in the rate and permanent increase in the tax-free threshold – are being used to further support the economy through NSW businesses. The Budget also creates additional state-based competition through a program to encourage domestic and international businesses to establish their headquarters in NSW to generate 25,000 jobs.

The NSW Budget measure which has a lot of residents talking is the provision of vouchers, inspired by the UK model, which has experienced much success in encouraging people to support dining and entertainment businesses. It will be interesting to see whether this measure sees people overcome their inertia around returning to the CBD.

“The NSW Government has done well in relation to inbound investment, using the policy levers which are most effective for supporting and attracting business,” said Mr Stribley.

Under the NSW Budget’s economic reform banner there are several initiatives to enhance efficiency of the planning system. However, the focus appears to be on unlocking State Significant Development Applications, building on support for government-based projects during COVID-19.

I hope the planning reforms go further than supporting projects which are close to the finish line

Clare Brown View Profile

Urbis Director Clare Brown stated, “I hope the planning reforms go further than supporting projects which are close to the finish line and serve to fast-track projects which are at much earlier stages.”

Some of the significant reforms announced include optimisation of industrial land uses and determining how to introduce more or different land uses in industrial or urban services zones. This should account for emerging industries and land uses which enhance employment.

Also exciting are the reforms to infrastructure contributions for enhanced efficiency, but it remains to be seen what these mean in a practical sense. For planning reforms to be effective they will need to filter from the state to local government level.

“While the planning reforms are welcomed as a step forward, there remains a multiplicity of planning approval authorities and pathways (including SEPPS, Masterplans, LEPs), which take time and money to navigate,” said Ms Brown.

A certain highlight is the NSW Budget’s support for streamlining ePlanning and the planning portal, making it easier to lodge applications and access relevant information.

With Victoria’s Budget due to be announced this week, it will be interesting to see how the state approaches recovery following an extended period of lockdown.

Economic activity may have been less fractured in NSW, with less disruption for small to medium sized businesses and supply chains, but the level of pent up consumer demand is most likely less and the trajectory of economic growth may not be as steep as in VIC.

Watch this space for an analysis of the VIC Budget announcement, including what it means for key sectors and the most viable opportunities. 

Princess Ventura View Profile
Nathan Stribley View Profile
Richard Gibbs View Profile
Rachel Trigg View Profile
Clare Brown View Profile