The NSW government’s forecast $16 billion deficit for the 2020/21 financial year has been cut by almost $3 billion due to the speed of the COVID-19 recovery, the treasurer says.
But the Labor opposition has cautioned against “hubris” from the government, arguing the state’s economic recovery could rapidly reverse.
Treasurer Dominic Perrottet announced on Thursday the government’s 2020/21 forecast half-year deficit sat at almost $13.3 billion, lower than the $16 billion forecast in November’s delayed NSW budget.
The unemployment rate sits at six per cent, down from 7.2 per cent in July.
More than 80 per cent of jobs lost at the height of the COVID-19 pandemic had been recovered but Mr Perrottet admitted conditions remained challenging and JobKeeper’s conclusion next month would have a negative impact.
The potential for new strains of the virus to emerge, or for new virus outbreaks in 2021, would also hang over confidence levels.
NSW’s economy contracted 1.0 per cent in 2019/20, and initial forecasts for 2020/21 of an additional 0.75 per cent contraction have been revised upwards, with treasury predicting no change to the economy’s size.
The state’s economy is then forecast to grow by 2.75 per cent in 2021/22.
Mr Perrottet said he was “quietly confident” on the state’s economic fortunes but conditions remained volatile and more work was required.
The government has spent some $29 billion on its response to the COVID-19 pandemic including grants to small businesses and the upcoming Dine and Discover program of hospitality business vouchers.
Expenses grew 9.7 cent in 2019/20 and another 11.2 per cent in 2020/21.
“We are starting to see both consumers and businesses returning to more normal patterns of behaviour and this is helping drive economic activity,” Mr Perrottet said in a statement.
“The roll out of the vaccine this week has provided more good news, but there are still thousands of people who are out of work and businesses struggling.”
Mr Perrottet also announced that the state’s sovereign wealth fund, the NSW Generations Fund, had grown to more than $14 billion.
But NSW Labor treasury spokesman Walt Secord warned Mr Perrottet to avoid “claiming victory” over the economic impact of the pandemic.
He argued treasury’s forecasts were premised on the successful rollout of the COVID-19 vaccine, open borders, a return to higher immigration levels and no additional major virus outbreaks – none of which were guaranteed.
The youth unemployment rate of 14.7 per cent also remained unacceptably high, Mr Secord said.
“We know that things can slip very quickly if there is an outbreak … we need to keep the foot on the accelerator in creating jobs right across the state and get wages growing,” he said in a statement.
Global credit rating agency Moody’s said it was pleasantly surprised by the government’s updated figures and argued the risk of snap lockdowns was diminishing.
Moody’s has upheld NSW’s much-vaunted AAA credit rating while rival agency S&P in December downgraded the state to AA+, citing a spike in debt.
“Despite significant disruption from lockdowns and border closures, the recovery in the NSW economy is exceeding our expectations as business confidence and consumer sentiment strongly rebound,” Moody’s investor service vice president John Manning said in a statement.
“In tandem with our expectation of a declining risk of sporadic shutdowns as effective vaccines are rolled out, the underlying strength of the state economy, combined with a clear intent to pursue rapid fiscal repair, continues to underpin NSW’s AAA rating and stable outlook.”