NSW Budget strikes the balance between relief and restraint

Today’s NSW budget is one that prioritises restraint and relief.

Both are needed. The last six months have seen a softening global and domestic economy that is likely to hit NSW the hardest of anywhere in the country.

With the largest mortgages in the country, NSW households are heavily exposed to pain from rising interest rates. At the same time, because no state relies on stamp duty and land tax more heavily, a cooling market drags down state revenue more than elsewhere.

Today’s budget revises down Gross State Product (GSP) growth for 2026-27 from 2.25 per cent to just 1 per cent, propped up only by the expansion of data centre and renewable investments. Over the next four years, state revenue is forecast to be $7.1 billion lower than predicted in last year’s Half-Yearly Review, entirely driven by an $8.4 billion fall in stamp duty and land tax collected.

In this context, it is welcome to see restraint in this budget. Average spending growth is forecast to remain low at 2.7 per cent over the forward estimates, continuing the Government’s track record of containing spending below the 6.5 per cent averaged between 2011-12 and 2022-23. Meanwhile, NSW's capital program is shifting from expansion to moderation, forecast at $116.7 billion over the next four years and returning to around 2 per cent of GSP (down from a peak of 3.3 per cent in 2019-20).

For these reasons and despite the deteriorating outlook, the state is still on track to return to a $1.1 billion surplus by 2027-28, with gross debt to GSP remaining low compared to other states and peaking just above 20 per cent.

The budget offers support that many households will welcome in light of recent economic headwinds. A 12-month, $561 million Transport Affordability Package cuts the weekly toll cap to $50, takes $100 off private vehicle registrations, and freezes Opal fare increases. As outlined in our coverage of other state budgets, CEDA continues to advocate for relief measures that are targeted to support households that are most in need of support.

Housing

Housing affordability remains the defining challenge for NSW and the Government’s focus remains squarely on supply. Construction costs are rising, leading to commercial feasibility increasingly becoming the binding constraint on new housing. With margins thin and construction costs high, too many approved projects stall before they break ground, blunting the supply that reforms were meant to deliver.

In 2025, just 44,900 homes were built in NSW. With the state’s National Housing Accord share demanding around 75,000 homes a year, the gap between ambition and delivery is stark.

To reduce costs and speed up build times, the budget introduces measures to support the uptake of Modern Methods of Construction (MMC). NSW will become the first Australian jurisdiction to recognise MMC in law by defining prefabricated buildings, integrating them into the approvals system and guaranteeing consumer protection for buyers. CEDA called for these reforms in our recent report, and they will play an important role in supporting the uptake of MMC. At the same time, there are requests for expressions of interest to establish a new MMC facility in the state.

The Government is also consolidating fragmented building legislation into a single Act, a welcome move to improve certainty and cut the time and cost of building. And the $1 billion Pre-sale Finance Guarantee will be extended, with the Government now able to underwrite 100 per cent of affordable housing built by community housing providers and 75 per cent of homes in developments under 20 dwellings, helping builders secure finance and start sooner.

Infrastructure

With an ambitious pipeline already underway, infrastructure announcements in today’s budget signal moderation instead of expansion.

These include $9.2 billion over four years to upgrade and deliver more than 260 new schools, $6.5 billion to improve Western Sydney roads, $2.4 billion for the Parramatta Light Rail Stage 2 project and a record $2.1 billion in annual investment for maintaining the city’s train network.

Over a 10-year period, the budget also invests $6.5 billion to build and deliver thousands of electric buses that will support the state’s energy transition and local manufacturing jobs.

As NSW continues to grow, a long-term pipeline of infrastructure is critical to ensuring everyone can access the services they need. But delivering on this ambitious program will require carefully balancing the needs of the community against growing workforce shortages that threaten both cost and completion targets.

Health

The Budget commits $10.3 billion in recurrent funding across health services, including $2.9 billion to fund nurses' pay rises. The investment will expand services and help staff new hospitals, supporting 33,000 more ED presentations and 2,900 additional planned surgeries each year.

The Government is also investing $112 million in mental health services, including $64.8 million for critical mental health and suicide prevention services, $43.3 million for Lifeline's crisis telephone line, and $4.3 million for mental health peak bodies and community-managed services. These are important measures for a growing issue. The number of Australians reporting poor mental health has risen from 9 per cent to 14 per cent over the past 2 decades.

Following the Commonwealth Government’s NDIS reforms, NSW is committing $632 million to support the commencement of Thriving Kids services for children aged eight and under with developmental delay and/or autism who have low to moderate support needs.

A slate of previously announced hospital projects have also received funding as part of an $11.9 billion capital expenditure program. The funding will support new hospitals at Bankstown ($2 billion), Rouse Hill ($910 million), and Eurobodalla ($330 million), the Fairfield Hospital redevelopment ($630 million), and extra beds at Blacktown and Mount Druitt ($120 million).

A $400 million maintenance blitz invests in high-priority assets to ensure patient safety and service continuity.

Energy transition and the environment

NSW is not on track to meet its legislated target of a 70 per cent emissions cut by 2035. The Budget makes useful but modest investments in the transition, though greater ambition will be needed to close the gap.

To support households switching to power-saving technologies, the Budget provides zero-interest loans of up to $15,000 for rooftop solar, batteries and insulation, repayable over ten years. The loans are expected to benefit more than 32,000 households.

A $225 million upgrade to transmission in the South West Renewable Energy Zone will unlock around 1.3 gigawatts of network capacity, clearing the way for four new wind, solar and battery projects to connect to the grid. The focus on transmission is welcome, given the critical role it plays in enabling new generation.

Meanwhile, $195.2 million over three years will fund conservation under the Saving our Species program, covering feral animal control, tree planting, weed and riverbank management, and habitat restoration for at-risk species. A further $26 million will deliver a NSW Nature Strategy to anchor statewide nature recovery targets.

Social compact 

A strong economy is underpinned by a strong social compact for all Australians. This year’s Budget includes $154.2 million to improve outcomes for First Nations people, with funding for housing and to support Aboriginal businesses. Nationally, just four out of 19 Closing the Gap targets are on track – today’s announcements include $45.3 million to progress these stalling commitments.

A strong social compact means that supports are available for the most vulnerable members of the community. An additional $184 million will provide a 50 per cent uplift to frontline services that help keep women and children escaping violence safe. This includes $76 million for the Safer Pathway program to provide coordinated support for victim-survivors and $54 million to help women and children remain safely in their homes after violence.