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Daniel Mookhey is prepared to be called boring.
In fact, the NSW treasurer, about to unveil his fourth and final budget before the next election in March, is banking on it.
Mookhey’s budget on Tuesday will be delivered in a time of global economic upheaval. As the NSW Labor government grapples with a faltering economy and falling revenue, it is also facing the seismic political change marked by the rise of Pauline Hanson’s One Nation Party.
And yet, in his office in parliament on Macquarie Street, the treasurer cuts an excited, energetic figure. With the football World Cup playing on a television silently in the background, he explains why spending restraint is the new black. And the way Labor plans to win the next election.
“When family budgets are under such pressure, I don’t think people want anything other than calm, stable, predictable financial management,” he says.
“I might be a bit boring at times; I’m not offended by that. But ultimately, I understand the stakes ... I don’t think I should be cavalier with people’s money.”
Mookhey’s time as treasurer has been marked by global uncertainty.
In June 2024, he predicted the re-election of US President Donald Trump would be the biggest threat to the NSW economy. He reminded the Herald of his prediction this week, noting his concern had “perhaps been borne out”.
A year ago, the budget papers were predicting the economy was “gradually returning to normal” after the long tail of inflation and cost-of-living pressures which followed the COVID pandemic. It did however note that “unpredictable US policies” were increasing uncertainty around economic forecasts.
And so it came to pass. The outbreak of war in Iran, and the oil price shock, inflation surge and interest rate hikes which have followed, prompted NSW Treasury to significantly downgrade its economic growth predictions for the next two years to only 1 per cent.
Mookhey is also coy when asked whether the two slim surpluses previously predicted for 2028 and 2029 have survived, saying the budget would show the government had taken “meaningful steps” towards delivering one.
It has meant the lead-up to the budget has been marked by its lack of sizzle. While pre-election budgets are typically big spending affairs, Mookhey has made few significant announcements beyond some health funding increases. There will be modest cost of living relief, and spending on a few government priorities such as housing, but little in the way of headline-grabbing reform (though there will likely be a sizeable fund to help pay for big ticket items certain to come closer to polling day).
Mookhey wants voters to see that as a virtue. “Relief for today, reform for tomorrow and discipline always,” he offers as his budget mantra.
Despite the lack of fireworks, the government believes it has a positive story to tell on financial management. From a deficit which blew out to $15 billion under the former government during COVID in 2021, and expense growth of nearly 24 per cent in the Coalition’s final year, Labor has reined in spending significantly since coming to government.
At the half-yearly review in December, expenditure growth was forecast at only 2.6 per cent over the forward estimates, and gross debt had been reduced by about $11 billion. At the same time, Labor has been able to deliver wage increases to frontline workers such as nurses and teachers while keeping employee-related expense growth to 5.2 per cent to 2026-27 – lower than in some years under the Coalition – by axing hundreds of senior executive jobs and making deep cuts to workers’ compensation.
Even so, Mookhey is yet to deliver a surplus. The state has now had seven consecutive budget deficits since the disruptions of COVID-19 and at least one more is expected; that’s the longest spell of negative budget balances in the modern era.
In Mookhey’s first budget – delivered in September 2023 – he predicted the state’s books would be in surplus by June 2025, but that proved overly optimistic. The latest forecast is for a surplus in 2027-28, although the level of economic uncertainty recently casts doubt on that outcome.
Mookhey blames the budget’s slow recovery on lavish spending late in the term of the previous government along with federal government cuts to NSW’s share of the GST. Persistent financial pressures on the state’s households and business has also been a constraint.
“We’ve been clear about our own responsibilities which is to not make our finances better by making households’ finances weaker,” Mookhey says.
“It’s certainly the case that I could have tried to return NSW to a surplus quicker by either increasing taxes or cutting the wages of essential workers. I think that would have been the wrong choice.”
This year’s budget – which will allocate about $130 billion – was pulled together against a troubling backdrop.
Trump’s attack on Iran has cast a shadow over the global economy, inflation is elevated, and interest rates have risen three times since February.
The state economy expanded by just 0.9 per cent last financial year, the worst result since 1992, not including the disruptions of the pandemic. The recent economic turmoil means that subdued rate of growth is set to last until late this decade.
One economic bright spot for NSW has been the jobs market.
The state’s unemployment rate has hovered around the 3 to 4 per cent mark for the past three-and-a-half years. The number of people employed in NSW reached 4.5 million for the first time in February.
But there are signs of weakness. Since November, the jobless rate in NSW has climbed from 3.9 per cent to 4.5 per cent, the highest since late 2021 when the economy was emerging from COVID lockdowns. There are now 211,000 people unemployed across the state – also a post-COVID high.
Unemployment rates vary considerably across NSW regions, especially in Sydney.
In the statistical districts of Parramatta and south-western Sydney (which takes in Liverpool, Cabramatta and Green Valley), Bureau of Statistics modelling showed the unemployment rate was 6.1 per cent in March, the highest of any NSW region and more than double the rate in Sutherland (2.8 per cent) and Northern Beaches (3 per cent).
In December, the NSW government forecast the state’s jobless rate would peak at the current level of 4.5 per cent in the middle of this year before easing back to 4.25 per cent by mid-2027.
But those predictions pre-date the economic disturbance caused by the Middle East conflict and the three interest rate hikes since February.
There is a danger demand for employment could be weaker than expected in the year ahead, especially if inflationary pressures persist and the Reserve Bank opts for further rate hikes.
Mookhey will seek to redirect political pressure from the lacklustre economy back onto the Coalition by focusing on areas the opposition has yet to offer clear positions, such as its renewable energy and wages policies.
In a May speech, Mookhey claimed the number of renewable energy projects now under construction along with the transmission lines and grid connections being repaired and upgraded “explains why the NSW economy is set to avoid a recession”.
In a tacit acknowledgement the government’s decision to remove a cap on public sector pay has been a factor in the government’s struggle to reach a surplus, Mookhey claims the previous Coalition government had “posted surpluses by suppressing wages”.
“I don’t think that they could have persisted with their policies during a cost-of-living crisis either, and I think that as the next election approaches, this is going to be a big dividing line between the two sides of politics,” he said.
“There’s a lot that I don’t know what the Liberal Party of NSW stands for, but the one thing I do know they stand for is lower wages, and I think that they, their go-to tool of budget management, has always been wage suppression. As we debate the pace by which NSW returns to surplus, we’re up front about our policies.”
Mookhey’s budget may be boring, but if he can convince voters that’s a plus, it will go a long way to ensuring Labor’s success at the election.
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