Speaking as part of a state treasurers panel with NSW Treasurer the Hon. Dominic Perrottet, he said: “We recognise that we're (Victorian and NSW) both under pressure from population growth.
“But I would say that with population growth comes both challenges and opportunity and you can look at it and bemoan the fact that you face these challenges or you could see it as a great opportunity to grow the state and the collective welfare of the community.
“The one thing that you can't do is just sit around and do nothing because the practical consequence of that will be to slow the economy.
“Yes, you'll probably slow population growth but you'll also lose a lot of opportunity for the next generation.
“The opportunities are clear to the state of Victoria and quite frankly the Federation works best when Sydney and Melbourne are both working with a competitive spirit between them but also recognising that we lift all boats, all boats rise on a rising tide when it comes to the east coast economies.”
Mr Perrottet said: “We don't control the leavers of population but we certainly control how we respond and that is building the infrastructure that will make a real difference.
“(In Sydney) we've got a three cities vision and we're making sure that as the population grows that infrastructure is around it,” he said.
“It’s not about the size of the spend it’s about the outcomes.”
Speaking on how states prepare for economic downturns, Mr Pallas said: “It's important that we recognise that no government in framing a budget ever has certainty about what the forward estimates or indeed what the outcome of any particular budget year looks like.
“Rather you've got to make the best advised assessment of what your circumstances are likely to do.
“So the first point I'd make is have some credibility around your economic forecasts.”
He also said a measure of conservatism was important.
“The other point I'd make is you have to cut the cloth to suit the nature of the budget that you're tailoring,” he said.
“If circumstances do turn against the state in Victoria, for example I've assumed a fall away in stamp duties, I'm told at the moment that those stamp duty numbers are still holding up relatively robustly, but nonetheless it's best to assume that there's at least a conservative fall away of the numbers.
“You can't help good luck, all you can do is seize the opportunity when it presents and plan for circumstances changing.
“You have to be able to make provision in terms of your budget for capacity to deal with those downturns and I think that's what good budgeting is all about.
“It's good luck and it's working hard when the good times are around and recognising that you need to make provision for capacity to deal without inflows of revenue, that we’ve seen particularly from our property market recently.
“One of the most important pieces of legislation we passed in NSW was a Fiscal Responsibility Act,” Mr Perrottet said.
“That keeps our expense growth lower than long-term revenue growth at about 5.6 per cent and that's really ensured that if we do have an area of revenue that drops off over time that we're well positioned.
“So we're certainly making sure that we protect ourselves from any downturns.”
However, Mr Perrottet said he’s incredibly positive about the future opportunities and the economic growth in NSW.
“We're in a strong position now and I think we’ll leverage off that and go further,” he said.
“With our public investment in infrastructure…we're also seeing significant growth in our education exports which is also leading to strengthening tourism and education related tourism that comes off the back of that.
“I also believe Australia, particularly I'd say NSW and Victoria, are perfectly positioned for the rise of the middle class in Asia.
“At the moment 50 per cent of the world's middle class are based in Europe or North America, by 2030 60 per cent will be in Asia.
“The export opportunities that will come our way as a result of this change – as long as we're ready for that, we're positioning for the future – I think the state of NSW is in a very strong position.”