Australia: Will voters pick Labor despite housing crisis?

In the first state budget proposed by Labor in New South Wales in more than a decade, housing was positioned as the primary focus of the document.

But by handing down a set of fiscally conservative financial books on Tuesday, the Treasurer of New South Wales, Daniel Mookhey, ran the risk of disappointing those voters who voted for a Labor government that could confront the issue head on.

Mookhey was unable to provide an estimate for when the state will emerge from the housing problem, which the committee for Sydney discovered was costing the economy more than $10 billion annually.

“It’s going to take some time,” he admitted. “I’m sorry.”

“We will not be able to rapidly rectify a decade of negligence. We face the risk of preventing an entire generation from ever being able to purchase their own home, which would be a significant breach in our national identity.

The treasurer spent the majority of his time during his maiden budget press conference explaining how a small $300 million direct investment in the state-owned Landcom to build fewer than 5,000 homes over the next 16 years would turn the dial.

He referred to it as “just the start” and highlighted to the overall $2.2 billion spend on housing in the budget, the majority of which was for infrastructure that would facilitate future growth.

“If we don’t build the streets, no one will build the homes,” he stated. “No one is going to build the homes.”

For renters, a recently appointed rental commissioner has been tasked with improving the laws to give people who don’t own more rights. However, according to the treasurer’s own admission to media in April, “the best way in which we can be alleviating rental stress is to build more properties,” so there is not a lot in Tuesday’s announcements for renters to get excited about.

Instead, the treasurer is presenting the budget as the first step in a lengthy process of reforming all aspects of the economy, as well as the first step in reconstructing critical services, such as schools and hospitals. This is the framing that they are using for the budget.

The New South Wales Labor government has presented the budget it inherited as one that is in need of repair; the state’s current financial predicament is not trivial.

Over the course of the forecast period, it was anticipated that the amount of net debt would steadily increase, eventually reaching a total of $113.6 billion by 2026-27. This came in lower than what had been anticipated, with a modification to the generations fund, which is a form of sovereign wealth fund, being the primary driver of the decline.

The Labor government contends that making contributions to a fund during a period of deficits, when the returns earned are less than the amount needed to service the debt, makes no longer makes any sense.

The Labor state government also wants to put a brake on the increase of spending and make sure that it does not outrun the growth of revenue. This is an important aspect of the financial discipline that credit rating companies look for.

According to the chief economist of AMP, Shane Oliver, following an extended period in which property values were quite strong and high sales volumes, the state’s finances should be more robust.

Oliver remarked that despite the fact that “there have been some ups and downs along the way,” it does surprise him that they are not in better health.

“Stamp duty revenue is still strong, even though we are not getting the same level of property transactions because property prices are still elevated,” the author writes. “While we are not getting the same level of property transactions, there are still high prices.”

Amidst sustained housing demand in New South Wales, property transfer duties, generally known as stamp duty, have consistently exceeded estimates for several years. For instance, the previous government brought in more than $5 billion in more revenue from property taxes in 2021-22 compared to what it had anticipated for.

Even though the previous Liberal state government against the Labor was responsible for the one-time pandemic costs that caused its operational budget to balloon, debt levels were already on the rise, and cash produced from privatizations during the Baird administration had already been spent or reinvested.

“This was the largest debt any incoming state government has ever inherited from its predecessor,” said Daniel Mookhey, the state’s treasurer.

“This Labor government prioritizes increasing wages for our essential workers while decreasing payments to our bondholders.”

Even though it is in much better financial health than its neighbor to the south, Victoria, New South Wales is currently at risk of a credit downgrade, and there is little room in the financial books to cope with another large shock. This is despite the fact that New South Wales is significantly more financially stable than Victoria.

In the fiscal year 2026-27, it is projected that the proportion of Victoria’s GDP that will be comprised of net debt will be 24.4%, while the proportion of net debt in NSW will be 12.6%.

An projected rise in revenue collected through taxes is necessary if New South Wales is going to get back into the black and be able to pay down its debt.

The total taxation revenue in New South Wales has been increased upwards by $17.6 billion from prior expectations, with the increase being supported by property transfer fees and payroll tax. The new projections are good through 2026-27.

The projections for the two different revenue streams are being helped along by factors such as increasing immigration, low unemployment, and rising earnings, in addition to a housing market that continues to be strong. Any severe worsening in economic conditions might wipe out the state’s planned return to a slim surplus in 2024-25, making it that much more difficult to reduce debt levels down, as well as eliminate the possibility of a return to a surplus at all.

The treasurer is not going to put all of their eggs in one basket just yet, despite the fact that the figures in the context of the budget look very positive.

“I am certainly not going to suggest that this surplus is locked and loaded,” Mookhey added. “It is not.”

The unstable state of the budget goes a long way toward explaining the lack of a show-stopping declaration during a cost-of-living crisis. Such an announcement could have run the danger for Labor of adding more debt and fueling inflation.

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