Trends in NSW State finances:
2002-03 to 2015-16
Statistical Indicators 4/2015
by Lenny Roth
ISSN 1838-0190
August 2015
© 2015
Except to the extent of the uses permitted under the Copyright Act 1968, no part of this
document may be reproduced or transmitted in any form or by any means including information
storage and retrieval systems, without the prior consent from the Manager, NSW Parliamentary
Research Service, other than by Members of the New South Wales Parliament in the course of
their official duties.
Trends in NSW State finances:
2002-03 to 2015-16
by
Lenny Roth
NSW PARLIAMENTARY RESEARCH SERVICE
Gareth Griffith (BSc (Econ) (Hons), LLB (Hons), PhD),
Manager, Politics & Government/Law .......................................... (02) 9230 2356
Lenny Roth (BCom, LLB),
Senior Research Officer, Law....................................................... (02) 9230 2768
Alec Bombell (BA, LLB (Hons)),
Research Officer, Law .................................................................. (02) 9230 3085
Tom Gotsis (BA, LLB, Dip Ed, Grad Dip Soc Sci)
Research Officer, Law .................................................................. (02) 9230 2906
Andrew Haylen (BResEc (Hons)),
Research Officer, Public Policy/Statistical Indicators .................. (02) 9230 2484
Daniel Montoya (BEnvSc (Hons), PhD),
Research Officer, Environment/Planning ..................................... (02) 9230 2003
John Wilkinson (MA, PhD),
Research Officer, Economics ...................................................... (02) 9230 2006
Should Members or their staff require further information about
this publication please contact the author.
Information about Research Publications can be found on the
Internet at:
http://www.parliament.nsw.gov.au/prod/parlment/publications.nsf/V3LIstRPSubject
Advice on legislation or legal policy issues contained in this paper is provided
for use in parliamentary debate and for related parliamentary purposes. This
paper is not professional legal opinion.
CONTENTS
Summary .......................................................................................................... i
1.
2.
Introduction ............................................................................................. 1
1.1
Outline.............................................................................................. 1
1.2
Key sources ..................................................................................... 1
1.3
Notes about figures .......................................................................... 1
Budget result and net lending result ..................................................... 3
2.1
Budget result .................................................................................... 3
2.2
Forecasts and outcomes .................................................................. 3
2.3
Net lending result ............................................................................. 4
3. Revenue ..................................................................................................... 6
3.1
Total revenue ................................................................................... 6
3.2
Own-source revenue ........................................................................ 6
3.3
Federal Government grants ............................................................. 8
4. Expenses.................................................................................................. 10
4.1
Total expenses............................................................................... 10
4.2
Expenses by type ........................................................................... 10
4.3
Expenses by policy area ................................................................ 11
5. Capital Expenditure ................................................................................. 12
6.
5.1
Total capital expenditure ................................................................ 12
5.2
Capital expenditure by policy area ................................................. 12
Assets and liabilities ............................................................................. 14
6.1
Net worth........................................................................................ 14
6.2
Net debt and net financial liabilities ................................................ 14
6.3
Liabilities by type ............................................................................ 16
6.4
Credit rating metrics ....................................................................... 17
SUMMARY
This paper reports on trends in NSW State finances between 2002-03 and 2015-16
(inclusive). For most of the key indicators, the paper also shows trends by Parliament for
the current (56th) Parliament and previous three Parliaments. Note that the NSW public
sector (the total State sector) is made up of three sectors: the general government sector,
the public trading enterprise sector, and the public financial enterprise sector.
Budget result
The budget result represents the difference between expenses and revenues from
transactions for the general government sector. The budget result does not take account
of capital expenditure. Key findings include:

The budget result was a surplus for all years except 2008-09. The revised estimate
for 2014-15 is a surplus of $2.1 billion, which would be the largest surplus over the
whole time period. The estimate for 2015-16 is a $713 million surplus. The
surpluses from 2013-14 to 2015-16 would have been larger if not for the impact of
revised accounting standard AASB 119.

The actual results were better than the forecast results in all years except for 200405 and 2008-09. The positive variations have ranged from $10 million to $3.1 billion,
and in six years, they exceeded $1 billion. In most cases, these positive variations
resulted from higher than expected revenues. The better than expected results in
2010-11 and 2011-12 were due to expenses being under budget.
Net lending result
The net lending result is the sum of the budget result before depreciation and net capital
expenditure (i.e. capital expenditure after asset sales) for the general government sector.
A net lending deficit means that funds from operations plus asset sales are insufficient to
fully fund the capital expenditure program, and the difference must be funded by
borrowings. Key findings include:

There were net lending deficits in all years from 2004-05 to 2013-14, and five of
these exceeded $2 billion. Net lending deficits are also forecast for 2014-15 ($1.2
billion) and 2015-16 ($3.7 billion). The 2015-16 forecast deficit would be the largest
over the time period. The deficits from 2013-14 to 2015-16 would have been
smaller if not for the impact of revised accounting standard AASB 119.
Revenue
Key findings include:

The split between own-source revenue and Federal Government grants has
remained relatively stable over the time period: 55-60 per cent (own-source): 40-45
per cent (Federal grants). The exception was in 2009-10 (53:47), which is largely
explained by the Federal Government's economic stimulus payments.

State taxes are by far the largest source of the government’s own-source revenue:
in 2015-16 it is estimated at 67 per cent of own-source revenue (68 per cent in
2002-03). Stamp duty is currently the largest source of State tax revenue: in 201516 it is estimated to be 35 per cent of total State tax revenue (37 per cent in 200203). Between 2007-08 and 2012-13, payroll tax contributed a higher share of tax
revenue than stamp duties.

There are two broad categories of Federal Government grants: General purpose
grants (i.e. GST payments); and Specific purpose grants, which require funds to be
spent in particular areas. Over the whole time period, general purpose grants have
generally comprised 60-65 per cent of total Federal government grants. In the
period from 2008-09 to 2011-12, they comprised a lower proportion of total grants
(50-55 per cent), largely due to the Federal Government’s economic stimulus
package, which formed part of specific purpose grants.

Specific purpose grants include National Specific Purpose Payments (NSPPs) and
National Partnership Payments (NPPs). Health has been the largest category of
NSPPs and increased its share from 52 per cent in 2002-03 to an estimated 61 per
cent in 2015-16. Education has received the next largest share, and this share rose
from 14 per cent in 2002-03 to an estimated 20 per cent in 2015-16. In most years,
transport received the largest share of NPPs, and this is particularly the case in
2015-16 with an estimated 68 per cent.
Expenses
Recurrent expenses are expenses incurred in the provision of goods and services. They
are distinct from capital expenditure, which is incurred in the acquisition of assets. Key
findings in relation to recurrent expenses include:

The composition of expenses remained relatively stable over the time period.
Employee-related expenses are by far the largest type of expenses: in each year
they have accounted for around half of total expenses.

In 2015-16, health has been allocated the highest share of total expenses (28.0 per
cent), which is slightly higher than the proportion allocated to health in 2002-03
(26.9 per cent). Education has been allocated the second highest share of
expenses (21.6 per cent), which is lower than the proportion allocated to education
in 2002-03 (25.9 per cent). The next largest policy area is now transport and
communications (12.7 per cent in 2015-16); and it has been allocated a much larger
share of the budget in recent years (9.2 per cent in 2010-11).
Capital expenditure
Key findings include:

In both the general government and total state sectors, there was an upward trend
in capital expenditure from 2005-06 to 2009-10, including a spike in 2009-10, which
was largely due to the Federal Government’s stimulus payments. After 2009-10,
capital expenditure in both sectors fell before rising again in 2012-13. In 2015-16,
general government capital expenditure is estimated to be 16.7 per cent higher than
in 2014-15; and state capital expenditure is estimated to be 19.7 per cent higher.

In the general government sector, the transport and communications policy has had
the largest share of the capital program over the time period. In 2015-16, this area
has been allocated 68 per cent of the total capital budget (up from 42 per cent in
2002-03). In recent years, the second largest policy area for capital expenditure has
been health (11.4 per cent in 2015-16).
Assets and liabilities
Key findings include:

In 2015-16, general government sector net worth (i.e. assets less liabilities) is
estimated at $190 billion ($121 billion in 2002-03);

Net debt is financial liabilities less financial assets. In the general government
sector, in 2015-16 net debt is forecast to be $9.9 billion, or 1.9 per cent of Gross
State Product (GSP), compared to 1.3 per cent of GSP in 2002-03. In the total State
sector, in 2015-16 net debt is forecast to be $44.9 billion, or 8.4 per cent of GSP,
compared to 5.5 per cent of GSP in 2002-03.

Net financial liabilities are total liabilities (financial liabilities plus unfunded
superannuation and other liabilities) less financial assets. In the general
government sector, in 2015-16 net financial liabilities are forecast to be $76 billion,
or 14.3 per cent of GSP, compared to 9.1 per cent of GSP in 2002-03. In the total
State sector, in 2015-16 net financial liabilities are forecast to be $125 billion, or
23.5 per cent of GSP, compared to 15.2 per cent of GSP in 2002-03.

In the general government sector, superannuation provisions (i.e. unfunded
superannuation) is the largest category of liabilities: an estimated 43 per cent in
2015-16 (up from 29 per cent in 2006-07). Gross debt, which includes borrowings
and finance leases, is the second largest category: an estimated 29 per cent in
2015-16 (the same as in 2006-07). In the total state sector, gross debt is the largest
category of liabilities: 49 per cent in 2013-14 (the same as in 2006-07).

The NSW Government's credit-worthiness has for many years been rated by two
rating agencies: Moody's and Standard and Poors (S&P). NSW has consistently
held a AAA rating (the highest). A key metric used by Moody’s in its assessment
deteriorated over the time period but has improved since 2012-13. It is currently
within the informal trigger band range. The metrics used by S&P worsened over the
time period but are below the trigger bands.
Trends in NSW State finances: 2002-03 to 2015-16
1.
INTRODUCTION
1.1
Outline
1
This paper reports on trends in NSW State finances between 2002-03 and 2015-16
(inclusive). For most of the key indicators, the paper also shows trends by Parliament for
the current (56th) Parliament and previous three (55th, 54th and 53rd) Parliaments. This
paper sets out the key trends but only briefly discusses the reasons for the trends. A full
analysis of the trends up to 2010-11 appears in the NSW Financial Audit 2011 (Ch 2-4).
1.2
Key sources
This paper draws on the following sources:




1.3
The NSW Budget Papers (including the 2015-16 papers)
NSW Reports on State Finances (including the 2013-14 report)
The NSW Financial Audit 2011
Figures provided by NSW Treasury on expenses by policy area
Notes about figures
1.3.1 Nominal not constant/real figures: It is important to note that all figures in this
paper are nominal figures, which have not been adjusted to take account of inflation.
1.3.2 Actual figures and estimates: The figures for the years 2002-03 to 2013-14 are
actual figures for the relevant year. The figures for 2014-15 are revised budget estimates.
The figures for 2015-16 are budget estimates.
1.3.3 Accounting changes: Since 2013-14, the budget has been prepared on the basis of
an amended accounting standard (AASB 119 Employee Benefits) which affects the
measurement of superannuation expenses (see NSW Budget Papers 2014-15, Budget
Statement, p1-6). In 2013-14, superannuation expense estimates were $1.5 billion greater
than they would have been under the old version of the standard.
For some fiscal indicators, the 2015-16 budget papers provide a time series with
adjustments made to the pre 2013-14 figures to make them consistent with the post 201314 figures (see Budget Statement, Appendix D). This paper uses consistent time series
figures where they are available, except in the case of the budget result and net lending
result. For some indicators in this paper (e.g. expenses by policy area), the pre-2013-14
figures will not be entirely comparable with the post 2013-14 figures.
Another accounting change results from the creation, as part of the 2015-16 budget, of a
Transport Asset Holding Agency (TAHE). This impacts on a number of 2015-16 fiscal
indicators: e.g. revenues ($1.9 billion higher in 2015-16), expenses ($58 million lower in
2015-16) and capital expenditure ($1.9 billion lower in 2015-16) (see 2015-16 Budget
Statement, p1-2). In this Statistical Indicators paper, the relevant figures have been
adjusted to exclude the impact of the creation of TAHE.
1.3.4 Budget sectors: The following diagram shows the structure of the NSW public
sector, which is made up of three sectors: the general government sector, the public
NSW Parliamentary Research Service
2
trading enterprise sector, and the public financial enterprise sector. The budget result and
net lending result relate to the general government sector; the figures in Chapters 2 to 4 of
this paper (budget result, net lending result, revenue and expenses) are therefore
presented for the general government sector only. The indicators outlined in Chapters 5
and 6 (capital expenditure and assets and liabilities) are presented for the general
government sector and the total state sector.
Figure 1.3: Structure of the NSW public sector
Total state sector
General
government
sector
Public trading
enterprise
sector
Public financial
enterprise
sector
Examples:
Examples:
Examples:
Department of Education
Ausgrid
NSW Treasury Corporation
Ministry of Health
Sydney Water Corporation
Sydney Trains
3
Trends in NSW State finances: 2002-03 to 2015-16
2.
BUDGET RESULT AND NET LENDING RESULT
2.1
Budget result
The budget result (or net operating balance) represents the difference between expenses
and revenues from transactions for the general government sector. The budget result does
not take account of capital expenditure. The revised estimate for 2014-15 is a surplus of
$2.1 billion, which would be the largest surplus over the whole time period. The estimate
for 2015-16 is a $713 million surplus. The surpluses from 2013-14 to 2015-16 would have
been larger if not for the impact of revised accounting standard AASB 119 (see 1.3.3
above). There was only one deficit - in 2008-09 ($897 million) – over the whole period.
Federal Government funding can have a major impact on budget results. This is
particularly the case from 2008-09 to 2011-12 when the Federal Government provided
Economic Stimulus payments: e.g. without these payments, the 2009-10 budget surplus of
$994 million would have been a substantial deficit. The budget results have also been
impacted by the Federal Government bringing forward the timing of road grants to NSW:
e.g. $690 million was brought forward from 2012-13 to 2011-12.
Figure 2.1 Budget result
2500
2,058
2000
1500
1000
1,708
1,340
1,126
1,034
695
1,247
994
386
500
713
680
584
239
$m
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
- 500
- 1000
-897
- 1500
Sources: NSW Report on State Finances; NSW Budget Papers
2.2
Forecasts and outcomes
The actual budget results were better than the forecast budget results in all years except
for 2004-05 and 2008-09. The worse than expected result in 2008-09 ($1.1 billion lower
than expected) was largely a result of the global financial crisis. The positive variations
have ranged from $10 million to $3.1 billion (in 2013-14), and in six years, they exceeded
$1 billion. In most cases, these positive variations resulted from higher than expected
revenues. However, the better than expected results in 2010-11 and 2011-12 were due to
expenses being under budget; and the better than expected result in 2012-13 was due to a
combination of higher than forecast revenues and lower than forecast expenses.
NSW Parliamentary Research Service
4
Figure 2.2.1 Variations in budget results: actual results less forecast results
3500
3,137
3000
2,341
2500
1,984
2000
1500
1,063
1000
500
1,398
1,280
731
567
408
102
10
$m
-142
- 500
- 1000
-1,165
- 1500
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Figure 2.2.2 Variations in revenues and expenses: actual figures less forecast figures
Revenue difference
4000
Expenses difference
3,432
3,375
3000
2,946
2,411
2,334
2,003
2000
1,633
1,806
1,816
2,030
1,781
1,531
1,391
1,067
925
1000
1,054
767
404
36
295
6
$m
-311
-525
- 1000
-629
-1,092
-1,392
- 2000
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Sources: NSW Budget Papers; NSW Report on State Finances
2.3
Net lending result
The NSW Financial Audit 2011 noted that there had been too much focus on the budget
result in recent years and not enough focus on the net lending result. It stated that the net
lending result:
…reports on the net impact of the general government sector’s recurrent and capital activities, and
their impact on the balance sheet (net financial liabilities). The net lending result is the sum of the net
operating result before depreciation, and net capital expenditure (i.e. expenditure after asset sales).
A net lending deficit (i.e. net borrowings) means that funds generated from operations (the budget
result before depreciation) plus asset sales are insufficient to fully fund the capital expenditure
program, and the difference must be funded by borrowings. (p2-2)
There were net lending deficits in all years from 2004-05 to 2013-14, and five of these
exceeded $2 billion. Net lending deficits are also forecast for 2014-15 ($1.2 billion) and
2015-16 ($3.7 billion). The 2015-16 forecast net lending deficit would be the largest over
the time period. Note that the deficits from 2013-14 to 2015-16 would have been smaller if
5
Trends in NSW State finances: 2002-03 to 2015-16
not for the impact of revised accounting standard AASB 119 (see 1.3.3).
Figure 2.3 Net lending result
1000
619
500
6
$m
- 500
-202
-483
- 1000
-1,040
- 1500
-1,236
-1,196
2013/14
2014/15
-1,546
- 2000
-2,024
- 2500
- 3000
-2,723
- 3500
-2,168
-2,910
-3,275
-3,675
- 4000
2002/03
2003/04
2004/05
2005/06
2006/07
Sources: NSW Report on State Finances; NSW Budget Papers
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2015/16
NSW Parliamentary Research Service
6
3. REVENUE
3.1
Total revenue
This chapter looks at revenue in the general government sector. In 2015-16, total revenue
is estimated to be $70.3 billion, which would represent 1.6 per cent annual growth from
2014-15. This is lower than the 5.3 per cent average annual growth over the whole time
period. Own-source revenue is estimated at $41.6 billion (59 per cent of total revenue),
and Federal Government grants are estimated at $28.7 billion (41 per cent). The split
between own-source revenue and Federal Government grants has remained relatively
stable over the time period: 55-60 per cent (own-source): 40-45 per cent (Federal grants).
The exception was in 2009-10 (53:47), which is largely explained by the Federal
Government's economic stimulus payments.
Figure 3.1.1 Total revenue by source and annual growth
80
14
70
12
60
27.3
50
26.3
40
30
15.2
15.5
16.2
17.8
18.0
19.5
20.8
22.2
22.9
26.9
24.6
27.9
26.0
28.7
24.5
10
8
21.7
6
20
10
25.0
28.0
30.0
28.0
32.2
33.0
35.7
38.7
41.2
41.6
4
2
$b
%
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Own source revenue
Federal
Total revenue annual growth (rhs)
Figure 3.1.2 Average annual revenue growth by Parliament
7
6
5
6.3
5.5
5.3
4.9
4
3
2
1.6
1
%
53rd Parliament
(03-04 to 06-07)
54th Parliament
(07-08 to 10-11)
55th Parliament
(11-12 to 14-15)
56th Parliament
(15-16)
02-03 to 15-16
Sources: NSW Financial Audit 2011; NSW Budget Papers
3.2
Own-source revenue
State taxes are by far the largest source of the government’s own-source revenue: in
7
Trends in NSW State finances: 2002-03 to 2015-16
2015-16, it is estimated at $27.9 billion, which represents 67 per cent of own source
revenue (68 per cent in 2002-03). The second largest category of own-source revenue is
the sale of goods and services ($6.3 billion): e.g. revenue from rent of State-owned
property, and tolls from government-operated roads. This category increased its share
from 13 per cent in 2002-03 to an estimated 15 per cent in 2015-16. The third largest
category has been dividends and income tax equivalents but it is forecast to drop by 40
per cent in 2015-16 (from $3.2 billion to $1.9 billion). This is primarily due to
determinations by the Australian Energy Regulator on electricity network revenues. Mining
royalties grew at the fastest rate over the period but still only represents a small part of
own-source revenue ($1.4 billion, or 3 per cent, in 2015-16).
Figure 3.2.1 Own-source revenue by type
45
40
2.6
2.8
35
30
25
20
15
1.5
1.3
2.7
1.3
1.6
1.3
1.5
2.7
2.8
10
5
3.2
2.3
14.1
15.0
15.3
1.6
1.8
3.0
15.9
1.7
2.0
3.3
1.8
1.7
2.3
2.0
3.7
4.0
2.4
2.1
2.4
2.5
4.7
5.0
2.3
2.3
4.4
3.0
3.2
6.4
Fines, regulatory fees
and other revenue
2.5
Grants & contributions
1.9
6.3
Mining royalties
5.7
5.4
Dividends & income
tax equivalents
Interest income
17.7
18.6
17.9
19.1
20.4
20.7
22.0
24.3
26.0
27.9
Sale of goods &
services
State taxes
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Financial Audit 2011; NSW Budget Papers
Stamp duty is currently the largest source of State tax revenue: in 2015-16 it is estimated
at $9.8 billion, which is 35 per cent of total State tax revenue (37 per cent in 2002-03). The
second largest source of tax revenue is payroll tax: in 2015-16 it is estimated at $7.9
billion, or 28 per cent of total State tax revenue (29 per cent in 2002-03). Between 2007-08
and 2012-13, payroll tax contributed a higher share of State tax revenue than stamp
duties. The third largest source of State tax revenue is land tax: in 2015-16 it is estimated
at $2.7 billion, which is 9.5 per cent of total State tax revenue (8 per cent in 2002-03).
Figure 3.2.2 State tax revenue by type
30
Other
2.9
25
2.6
2.9
20
15
10
1.3
1.3
1.2
1.4
1.3
1.4
1.3
1.6
1.3
1.5
1.3
1.7
4.1
4.4
4.8
5.2
5.2
5.5
1.3
1.3
1.1
1.1
1.5
1.7
0.9
2.0
1.8
1.6
1.5
1.9
5.7
6.2
2.0
1.6
1.5
2.3
6.4
2.8
2.5
1.7
1.7
1.8
1.8
1.8
2.3
2.3
2.4
6.1
6.4
6.7
5.2
5.3
5.3
2.2
1.9
2.5
1.9
2.3
1.9
2.2
2.5
2.1
2.3
2.3
7.5
4.8
4.8
5.5
4.1
2.2
Gambling
2.4
2.7
7.9
Vehicle taxes
Land tax
7.1
6.9
Payroll tax
5
6.0
2.1
6.2
7.9
9.1
9.8
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Financial Audit 2011; NSW Report on State Finances; NSW Budget Papers
Stamp duties
NSW Parliamentary Research Service
8
3.3
Federal Government grants
There are two broad categories of Federal Government grants:
(1) General purpose grants, which are now comprised almost entirely of GST
payments (99.8 per cent in 2013-14), but previously also included National
Competition Policy payments; and
(2) Specific purpose grants, which require funds to be spent in particular areas.
In 2015-16, growth in total Federal Government grants is estimated to be 2.5 per cent.
This is lower than the 5.0 per cent average annual growth over the whole time period. In
2015-16, general purpose grants are estimated to comprise 60 per cent of total grants
(and specific purpose grants 40 per cent). Over the whole time period, general purpose
grants have generally comprised 60-65 per cent of total grants. However, in the period
from 2008-09 to 2011-12, general purpose grants comprised a lower proportion of total
grants (50-55 per cent), largely due to the Federal Government’s economic stimulus
package, which formed part of specific purpose grants.
Figure 3.3.1 Federal Government grants by type
30
25
25
20
12.9
15
5.3
5.6
6.0
7.3
6.8
7.6
11.1
11.8
11.4
9.9
9.9
10.2
10.7
10.9
11.3
9.7
20
15
9.7
10
10
5
10.9
11.9
12.0
13.4
13.9
14.3
14.8
15.9
17.1
17.3
5
%
$b
-5
-5
- 10
- 10
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
General purpose
Specific purpose
Total grants annual growth (rhs)
Sources: NSW Financial Audit 2011; NSW Report on State Finances; NSW Budget Papers
Since 2008-09, there have been two broad categories of specific purpose grants:
(1) National Specific Purpose Payments (NSPPs), which support National Agreements
in six policy areas; and
(2) National Partnership Payments (NPPs), which support specified projects, facilitate
reforms or reward jurisdictions that deliver on nationally significant reforms (NSW
Financial Audit, p2-41; and Budget Papers 2012-13, Budget Statement, p6-14).
In 2015-16, NSPPs are forecast to comprise 76 per cent of all specific purpose grants.
Health has been the largest category of NSPPs and increased its share from 52 per cent
in 2002-03 to an estimated 61 per cent in 2015-16 ($5.2 billion). Education has received
the next largest share, and this share rose from 14 per cent in 2002-03 to an estimated 20
9
Trends in NSW State finances: 2002-03 to 2015-16
per cent in 2015-16 ($1.8 billion). Note that the areas of health, education and housing
have also received National Partnership Payments (see further below).
Figure 3.3.2 NSPPs by policy area
9
8
7
1.5
2.1
6
1.1
5
4
3
0.7
0.9
0.4
0.4
0.4
0.3
0.4
0.4
0.7
0.7
0.4
0.4
0.4
0.8
0.4
0.4
0.5
0.9
2
1
2.7
3.0
2.8
3.1
1.3
0.4
0.4
0.6
0.4
0.4
0.5
1.0
0.3
0.4
0.4
0.6
0.3
0.4
0.4
0.7
1.0
1.1
0.2
0.4
0.4
0.7
1.2
0.3
0.4
0.4
0.5
0.2
0.4
0.4
0.4
1.3
1.2
0.3
0.4
0.5
0.4
0.3
0.4
0.5
0.4
0.3
0.4
0.5
0.5
Other
Housing
1.8
1.6
1.4
Skills
1.0
Disability*
3.7
3.3
3.9
3.7
3.9
4.3
4.1
4.9
4.4
5.2
Education
Health
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Financial Audit 2011; NSW Budget Papers.
Note: Until 2011-12, disability payments included payments for Home and Community Care. Since 2011-12, these have been made as a National
Partnership Payment (in the “other” category).
The Figure below shows National Partnership Payments (NPPs) by policy area from their
introduction in 2008-09 to 2014-15. In most years, transport received the largest share of
NPPs, and this is particularly the case in 2015-16 with an estimated 68 per cent ($1.9
billion). Economic stimulus and nation building dominated NPPs in 2009-10 and 2010-11.
Figure 3.3.3 NPPs by policy area
7
Other
6
0.6
Environment
5
0.9
4
Housing
0.4
3.4
3
2
1
0.8
Stimulus/nation building
1.4
0.7
0.7
0.3
0.4
0.9
2.1
0.7
0.4
0.3
0.4
0.4
0.6
0.5
1.3
0.3
0.2
0.3
0.5
0.8
0.5
0.4
2.1
1.3
0.2
0.3
0.4
0.2
0.3
0.2
0.2
Health
1.6
1.9
2014/15
2015/16
0.7
Transport
$b
2008/09
2009/10
2010/11
2011/12
Sources: NSW Financial Audit 2011; NSW Budget Papers
2012/13
Education
2013/14
NSW Parliamentary Research Service
10
4. EXPENSES
4.1
Total expenses
This chapter looks at recurrent expenses in the general government sector. Recurrent
expenses are expenses incurred in the provision of goods and services. These expenses
are distinct from capital expenditure, which is expenditure incurred in the acquisition of
assets (see chapter 5). In 2015-16, total expenses are estimated at $69.6 billion. This
represents 3.7 per cent growth on 2014-15, which is lower than the 5.6 per cent average
annual expenses growth over the whole time period.
Figure 4.1.1 Total expenses
70
12
60
56.5
50
61.9
64.8
69.6
10
8
51.3
40
30
57.0
59.6
67.1
34.3
38.8
36.5
44.7
41.5
47.3
6
4
20
2
10
$b
0
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Figure 4.1.2 Average annual expenses growth by Parliament
8
7
6
6.8
6.3
5
5.6
4
4.1
3
3.7
2
1
%
53rd Parliament
(03-04 to 06-07)
54th Parliament
(07-08 to 10-11)
55th Parliament
(11-12 to 14-15)
56th Parliament
(15-16)
02-03 to 15-16
Sources: NSW Budget Papers
4.2
Expenses by type
The composition of expenses remained relatively stable over the time period. Employee–
related expenses are by far the largest type of expenses: in each year they have
accounted for around half of total expenses (an estimated $33.3 billion or 48 per cent
estimated in 2015-16). The second largest category is “other” operating expenses (an
estimated $15.7 billion or 23 per cent in 2015-16). This category includes expenses such
as “repairs and maintenance, medications and other supplies in hospitals, books in
schools, fuel for police motor vehicles, consultancies, contractors, electricity and
11
Trends in NSW State finances: 2002-03 to 2015-16
communications” (NSW Budget Papers 2014-2015, Budget Statement, p5-14). The third
largest category is “current grants and subsidies” (an estimated $11.1 billion or 16 per cent
in 2015-16), which are “for non-government schools, community organisations and local
governments, as well as operating subsidies for transport”. Finance (i.e. interest) expenses
grew by the fastest rate and increased its share of total expenses from 2.3 per cent in
2002-03 to an estimated 3.2 per cent in 2015-16 ($2.2 billion).
Figure 4.2.1 Expenses by type
70
Other
60
14.3
50
11.5
12.4
1.7
1.9
11.0
40
30
8.6
0.8
20
10
1.8
1.3
5.4
16.4
9.0
0.8
1.9
1.2
5.9
17.7
8.5
1.1
2.0
1.4
6.0
19.5
8.7
8.2
1.3
7.4
2.5
2.3
7.3
21.3
22.9
2.3
2.8
1.2
2.1
1.6
6.8
20.7
4.0
3.1
2.2
2.8
5.2
2.8
2.5
8.0
8.9
9.2
7.7
24.7
26.2
27.3
28.5
1.5
2.6
3.0
1.3
2.2
2.1
3.0
2.1
10.2
14.2
13.4
3.7
2.3
9.1
9.6
14.7
2.3
15.7
2.2
4.2
3.0
4.4
2.7
10.2
11.1
Finance
Depreciation
Capital grants
28.4
31.5
32.8
33.3
Current grants
and subsidies
Employeerelated
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Budget Papers
4.3
Expenses by policy area
In 2015-16, health has been allocated the highest share of total expenses ($19.5 billion or
28.0 per cent of total expenses). This is slightly higher than the proportion allocated to
health in 2002-03 (26.9 per cent). Education has been allocated the second highest share
of expenses ($15.0 billion or 21.6 per cent). This is lower than the proportion of the budget
allocated to education in 2002-03 (25.9 per cent). Health and education together comprise
around 50 per cent of total expenses. The next largest policy area is now transport and
communications ($8.8 billion or 12.7 per cent in 2015-16); and it has been allocated a
much larger share of the budget in recent years (up from 9.2 per cent in 2010-11).
Housing and community amenities is one of the smaller policy areas but expenditure in
this area increased at the fastest rate over the time period; and its share of the budget
increased from 2.2 per cent in 2002-03 to 4.2 per cent in 2015-16 ($2.9 billion).
Figure 4.3.1 Expenses by policy area
70
Other
60
9.2
50
40
4.7
30
4.5
20
2.6
3.6
3.2
2.8
3.8
3.7
8.5
8.7
8.8
9.6
10
5.0
5.1
2.9
4.2
3.9
3.0
4.3
4.2
5.1
3.3
4.5
4.3
5.6
6.6
6.6
4.6
7.5
8.2
4.9
4.9
5.1
6.2
6.4
9.3
2.3
5.2
6.7
8.9
9.2
14.2
3.6
4.9
4.4
12.0
12.8
13.2
11.0
12.2
13.7
13.6
14.2
15.2
15.9
16.8
17.6
9.4
9.7
10.0
10.5
10.4
11.0
11.7
12.8
5.6
4.6
4.8
5.2
7.4
2.7
5.6
6.4
4.0
5.1
4.6
6.1
9.3
9.2
2.9
6.0
7.0
8.8
Housing & community
amenities
Social security & welfare
Public order & safety
15.0
Transport &
communication
18.4
19.5
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Treasury, NSW Budget Papers
Recreation and culture
Education
Health
NSW Parliamentary Research Service
12
5. CAPITAL EXPENDITURE
5.1
Total capital expenditure
In both the general government and total state sectors, there was an upward trend in
capital expenditure from 2005-06 to 2009-10, including a spike in 2009-10, which was
largely due to the Federal Government’s economic stimulus payments (see NSW Budget
papers 2013-14, Infrastructure Statement, p1-3). After 2009-10, capital expenditure in both
sectors fell before rising again in 2012-13. In 2015-16, general government capital
expenditure is estimated to be $11.2 billion (16.7 per cent higher than in 2014-15); and
state capital expenditure is estimated at $16.5 billion (19.7 per cent higher).
Figure 5.1.1 Total capital expenditure
20
40
15
14.1
16.3
16.5
14.9
13.3
10
7.0
5
$b
6.7
3.3
6.7
9.8
3.9
3.3
3.3
8.5
7.3
7.0
4.7
5.3
13.8
11.2
7.9
8.4
4.3
13.9
13.1
11.2
30
20
9.6
10
5.9
%
-5
-10
-10
-20
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
General government
Total state
GG annual growth (rhs)
TS annual growth (rhs)
Figure 5.1.2 Average annual capital expenditure growth by Parliament
25
General government
Total State
20
19.7
15
16.9
13.2
10
10
5
11
9.8
8.1
7.2
6.4
%
-1.9
-5
53rd Parliament 54th Parliament 55th Parliament 56th Parliament
(03-04 to 06-07) (07-08 to 10-11) (11-12 to 14-15)
(15-16)
02-03 to 15-16
Sources: NSW Budget Papers
5.2
Capital expenditure by policy area
Figures for capital expenditure by policy area have only been published for the general
government sector and not the total state sector. The transport and communications policy
area has had the largest share of the general government sector capital program over the
13
Trends in NSW State finances: 2002-03 to 2015-16
time period. In 2015-16, this area has been allocated $7.6 billion or 68 per cent of the total
capital budget (up from 42 per cent in 2002-03). In recent years, the second largest policy
area for capital expenditure has been health: an estimated $1.3 billion or 11.4 per cent in
2015-16. The third largest has been education: an estimated $0.6 billion or 5.0 per cent in
2015-16. In 2009-10 and 2010-11, education had a much larger share of the capital
budget (30-37 per cent) as a result of Federal Government’s economic stimulus payments.
Figure 5.2.1 General government capital expenditure by policy area
12
Other
0.6
10
0.5
0.4
8
0.4
0.4
0.4
6
0.5
4
2
0.5
0.2
0.3
0.4
0.5
1.3
0.4
0.3
0.4
0.4
0.5
0.4
0.4
0.5
0.4
0.5
0.6
1.2
1.2
1.5
0.5
0.5
0.6
0.6
1.7
0.5
2.7
0.5
0.7
0.4
0.5
0.5
0.7
0.7
0.4
0.5
0.6
0.4
2.1
0.6
0.5
0.4
0.5
0.5
0.4
0.6
0.6
1.3
1.2
Recreation and culture
1.6
Public order and safety
0.4
0.7
7.6
0.8
6.3
4.5
2.5
2.0
2.6
3.2
$b
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
.
Sources: NSW Report on State Finances; NSW Budget Papers
Note: The figures for the years prior to 2008-09 do not include assets acquired under finance leases
Housing and
community amenities
1.2
5.4
3.0
Social security and
welfare
Education
Health
Transport and
communications
NSW Parliamentary Research Service
14
6.
ASSETS AND LIABILITIES
6.1
Net worth
In 2015-16, general government sector net worth (i.e. assets less liabilities) is estimated at
$190 billion ($121 billion in 2002-03); the total state sector net worth was not reported.
This represents an estimated 1.7 per cent growth from 2014-15. This is lower than the 3.5
per cent average annual growth in net worth over the whole time period.
Figure 6.1.1 Net worth
200
150
100
121
129
124
129
124
121
128
137
128
147
137
141
153
153
147
136
167
166
190
146
168
167
163
20
168
174
15
146
10
50
5
$b
%
- 50
-5
- 100
- 10
- 150
- 15
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
General government
Total State
GG annual growth (rhs)
TS annual growth (rhs)
Figure 6.1.2 Average annual net worth growth by Parliament
10
9
8
7
6
5
4
3
2
1
%
General government
Total State
8.9
4.5
3.1
5
3.5
3.1
1.7
53rd Parliament
(03-04 to 06-07)
54th Parliament
(07-08 to 10-11)
55th Parliament
(11-12 to 14-15)
56th Parliament
(15-16)
02-03 to 15-16
Sources: NSW Budget Papers; NSW Report on State Finances
6.2
Net debt and net financial liabilities
The budget papers report on net debt and net financial liabilities as indicators of the
strength of the State’s financial position.
Net debt is financial liabilities (deposits held, advances received, loans and other
borrowings) less financial assets (e.g. cash and deposits, advances paid and investments,
loans and placements). In the general government sector, in 2015-16 net debt is forecast
15
Trends in NSW State finances: 2002-03 to 2015-16
to be $9.9 billion, or 1.9 per cent of Gross State Product (GSP), compared to 1.3 per cent
of GSP in 2002-03. In the total State sector, in 2015-16 net debt is forecast to be $44.9
billion, or 8.4 per cent of GSP, compared to 5.5 per cent of GSP in 2002-03. The 2015-16
Budget Statement notes (p5-32) that fluctuations in net debt since 2011:
…can be primarily explained through changes in cash levels as a result of sales and leases
of the State’s assets including for asset recycling initiatives. When proceeds from the sale or
lease of assets are received, cash increases and net debt falls. When these funds are
recycled into productive uses, cash and net debt return to previous levels.
Figure 6.2.1 Net debt
General government
Total State
GG as % of GSP (rhs)
TS as % of GSP (rhs)
45
10
44.9
43.7
40
41.6
40.4
41.4
8
35
33.3
30
6
5
20
20.0
15
15.5
16.7
15.4
21.8
4
15.5
3
14.1
10
11.9
9.2
8.2
5
$b
7
32.4
29.4
25
9
3.6
3.0
2002/03
2.8
2003/04
1.5
2004/05
6.9
5.7
3.6
2005/06
2
8.0
6.7
9.9
1
%
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
Sources: NSW Budget Papers
Net financial liabilities are total liabilities (financial liabilities plus unfunded superannuation
and other employee provisions, insurance obligations and other liabilities) less financial
assets. In the general government sector, in 2015-16 net financial liabilities are forecast to
be $76 billion, or 14.3 per cent of GSP, compared to 9.1 per cent of GSP in 2002-03. In
the total State sector, in 2015-16 net financial liabilities are forecast to be $125 billion, or
23.5 per cent of GSP, compared to 15.2 per cent of GSP in 2002-03.
Figure 6.2.2 Net financial liabilities
General government
140
Total State
GG as % of GSP (rhs)
120
115.0
95.0
80
79.5
77.0
69.5
45.6
25.4
54.5
60.0
53.2
53.1
57.6
125.0
117.6
25
20
85.4
54.5
30
92.6
60
20
126.3
124.6
100
40
TS as % of GSP (rhs)
76.0
15
69.7
55.0
10
42.9
31.4
25.1
31.3
28.1
33.3
$b
5
%
2002/03 2003/04
Sources: NSW Budget Papers
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
NSW Parliamentary Research Service
16
Figure 6.2.3 Average annual growth in debt and liabilities by Parliament
50
General government - net debt
General government - net financial liabilities
Total State - net debt
Total State - net financial liabilities
48.4
40
30
21.6
20
6.6
10
0.0
2.5
18.3
12.9 14.8
8.8
4.0
8.0 8.8 8.5 8.1
8.4
6.3 8.1
%
-1.3
-4.4
- 10
53rd Parliament
(03-04 to 06-07)
54th Parliament
(07-08 to 10-11)
55th Parliament
(11-12 to 14-15)
-1.1
56th Parliament
(15-16)
02-03 to 15-16
Sources: NSW Budget Papers
6.3
Liabilities by type
In the general government sector, superannuation provisions (i.e. unfunded
superannuation) is the largest category of liabilities: an estimated $49.7 billion or 43.4 per
cent in 2015-16 (up from 29.4 per cent in 2006-07). Note that superannuation provisions
can fluctuate according to the discount rate used to value them. Gross debt, which
includes borrowings and finance leases, is the second largest category: an estimated $33
billion or 28.8 per cent in 2015-16 (the same percentage as in 2006-07).
Figure 6.3.1 General government liabilities by type
120
8.3
7.5
100
6.9
9.6
80
6.5
6.2
60
40
6.3
20
14.0
5.3
6.6
7.0
5.9
8.1
7.4
8.6
17.6
9.0
14.4
2006/07
2007/08
32.7
7.9
8.4
31.9
Payables & other
liabilities
15.2
Tax liabilities
8.6
10.4
28.9
Employee provisions
33.0
30.9
Insurance and other
provisions
24.7
47.2
29.4
9.6
15.2
32.7
8.0
20.0
14.4
8.5
14.8
17.6
9.5
6.7
7.4
32.3
40.3
48.3
54.1
49.7
Gross debt
Superannuation
provisions
$b
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
Sources: NSW Budget Papers.
Note: Not all of the same categories were reported for 2006-07 as for subsequent years.
Figures on liabilities by type for the total State sector are only available up to 2013-14. In
this sector, gross debt is the largest category of liabilities: $83.8 billion or 48.7 per cent in
2013-14 (the same percentage as in 2006-07). The second largest is superannuation
provisions: $51 billion or 29.7 per cent in 2013-14 (up from 18.6 per cent in 2006-07).
17
Trends in NSW State finances: 2002-03 to 2015-16
Figure 6.3.2 Total state sector liabilities by type
180
160
8.9
8.6
140
100
9.3
7.2
13.0
18.5
9.6
80
60
24.6
40
14.1
20
8.7
9.9
15.3
120
34.5
25.2
9.5
7.9
13.7
9.5
11.2
39.6
2006/07
2007/08
Payables & other
liabilities
51.0
Other provisions
43.2
34.1
Employee
provisions
31.0
17.8
36.9
16.4
15.5
50.9
51.0
Other combined
60.3
64.6
2009/10
2010/11
74.9
78.6
83.8
2011/12
2012/13
2013/14
Superannuation
provisions
Gross debt
$b
2008/09
Sources: NSW Budget Papers; NSW Report on State Finances.
Note: Not all of the same categories were reported for 2006-07 to 2008-09 as for subsequent years.
6.4 Credit rating metrics
The NSW Government's credit-worthiness has for many years been rated by two rating
agencies: Moody's and Standard and Poors. NSW has consistently held a AAA rating (the
highest). The credit rating history and process is discussed in the NSW Financial Audit
2011 (p1-33ff). That report noted that the rating agencies conduct annual reviews,
considering a range of factors including the economy, financial management, and debt
profile; and that they placed special emphasis on a key balance sheet metric.
In the case of Moody’s the metric is: total state gross non-commercial debt / general
government sector revenue. The report noted that Moody's had not set formal trigger
bands but it "has said informally that the NSW ratio should not be allowed to exceed 60-70
percent". As shown below, this metric deteriorated over the time period but has improved
since 2012-13. It is currently within the informal trigger band range. On 9 December 2014,
Moody’s confirmed the AAA rating with a stable outlook (see Treasurer’s press release).
Figure 6.4.1 Moody’s credit metric
80
75
70
65
60
55
50
45
40
35
%
2002/03
2003/04
2004/05
Sources: NSW Budget Papers
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
NSW Parliamentary Research Service
18
In the case of S&P, the metrics are:

gross debt in the non-financial public sector/operating receipts in the non-financial
public sector (debt metric); and

gross interest paid in the non-financial public sector/operating receipts in the nonfinancial public sector (interest metric).
As shown below, both metrics worsened over the time period but are below the trigger
bands. On 15 October 2014, S&P confirmed the AAA rating and upgraded the outlook
from negative to stable, “reflecting our view that the risk of much higher debt levels to fund
the state's high infrastructure needs has receded significantly” (see S&P press release). In
relation to the outlook, S&P also stated:
We could lower the ratings if budgetary performance deteriorates materially, so that aftercapital-expenditure deficits were greater than 10% of revenues, and debt rose to more than
120% of revenues and/or interest expense rose to more than 5% of operating revenues. This
might occur either because economic and revenue growth deteriorates, or operating
spending pressures increase. Such an outcome could also occur if the government
significantly increases its capital program without relying on funding sources other than debt,
resulting in a substantially higher debt burden for the state; in such a scenario, we could also
lower our assessment of the state's financial management.
Figure 6.4.2 S&P credit metrics
S&P debt metric
S&P interest metric (rhs)
90
5
80
4
70
3
60
2
50
1
40
%
%
2002/03 2003/04
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: NSW Budget Papers