NSW to lift taxes, sell assets in budget

The New South Wales government plans to increase taxes, sell off property and privatise some assets in a bid to repair a deteriorating budget position and protect its triple A credit rating.

In its mini-budget handed down on Tuesday, the government has forecast a $917 million operating budget deficit for the 2008/09 financial year, a massive turnaround from the $268 million surplus projected in June.

Treasurer Eric Roozendaal said the slowdown underway in the global economy and the turmoil on financial markets had hit the state hard, forcing some difficult decisions.

"This is a tough mini-budget for tough economic times," Mr Roozendaal told reporters.

"It's strong medicine for the state."

Among other measures, the government said it planned to cut spending, raise taxes, increase mineral royalties paid by coal miners and extend environmental levies for non-recycled waste in a bid return the budget to surplus in future years.

"Non-core" or "surplus" assets, such as Australian Technology Park and commercial property managed by the Sydney Harbour Foreshore Authority, would be sold or converted to 99-year leases.

The property divestments are expected to improve the budget bottom line by $870 million over the next four years to 2011/12.

The state government will look at selling businesses such as NSW Lotteries, waste services company WSN Environmental Solutions, the Superannuation Administration Corporation and the Roads and Traffic Authority's non-standard number plate business.

"Transferring assets to the private sector improves the total state sector net financial liabilities, a key measure used by the ratings agencies to assess the state's creditworthiness," the budget papers said.

The estimated proceeds were not included in forward estimates, nor was any timeline for the sales given, but Mr Roozendaal said the assets had the potential to "unlock billions in capital for reinvestment in frontline services".

Australian Industry Group NSW director Mark Goodsell said business would have preferred the government to explore a wider range of privatisation options.

"The government remains in businesses that would be far better run by the private sector both in terms of their costs and quality of service to consumers," Mr Goodsell said in a statement.

"NSW, which is a third of the national economy, is a drag on national performance and the mini-budget has wasted an opportunity to address this issue."

Mr Roozendaal said the government would do "all in our power" to preserve the state's triple A credit rating and avoid paying up to $100 million in extra interest payments per year by 2012.

"Our state's best defence against the international tide of uncertainty is an AAA credit rating," Mr Roozendaal said in his budget speech.

Ratings agency Standard & Poor's (S&P) on Tuesday affirmed the state's AAA long term and A-1-plus short term ratings.

But S&P retained a negative outlook on the state, pending the government's successful execution of its budget strategies.

"In our opinion, today's mini budget goes some way to reducing the uncertainty about the state's fiscal flexibility," S&P credit analyst Danielle Westwater said.

The mini-budget papers said revenue from property taxes had been revised down to $3.1 billion in 2008/09, compared with $3.8 billion in the original June budget estimate, amid a slumping housing market.

GST revenue from the Commonwealth government was revised lower by $450 million in 2008/09, with payroll tax receipts also expected to be less than original estimates.

The government foreshadowed an $890 million reduction in capital expenditure over the four years to 2011/12.

Its capital works program, particularly in transport, has been "reprioritised", with the $12 billion North West Metro project deferred indefinitely.

The mini-budget papers forecast gross state product of 1.25 per cent for 2008/09, compared with the original estimate of two per cent.

The unemployment rate was expected to reach 5.25 per cent in 2008/09, higher than the 4.75 per cent forecast in June.

The mini-budget was announced after the government's failed attempt to privatise the state's electricity system.