Taxpayers are being readied for a brutal budget update as the NSW treasurer warns that booming coffers in resource-rich regions won't be replicated in Australia's largest state economy.
Amid high inflation, rising interest rates and growing debt, Treasurer Daniel Mookhey warned tough decisions were in store ahead of the September budget.
"The situation is indeed serious," he said on Monday.
By the end of this month, the NSW budget is forecast to be $12 billion in deficit, with debt expected to reach $187.5b by 2026 and interest payments skyrocketing.
"Undoubtedly the two remaining AAA credit ratings we have are under immense pressure," Mr Mookhey said.
Queensland has been basking in a record $12.3b surplus on the back of a booming resource sector, but the treasurer ruled out following the northern state's lead in increasing mining taxes to help improve the budget bottom line.
He said Labor went to the last election matching the previous government's pledge not to increase royalty rates for the 2023-24 year and that remained its approach.
Western Australia has also reported a better-than-expected budget surplus of $4.2 billion to be converted into cost-of-living relief and improving the state's health system.
Mr Mookhey flagged moves to review the former government's debt reduction fund, describing it as being akin to "using the state's credit card to play around in financial markets".
"NSW will soon have used borrowed money to artificially build the biggest sovereign wealth fund owned by a state government worldwide," he said.
"No sub-national government anywhere in the world has planned to use debt like this."
The former Liberal-National government planned to raise more than $25.3b of debt by 2027 to deposit into the fund, taking its balance to $50.8b.
While the 2023 pre-election budget update showed a $328 million surplus for 2024-25, that would have equated to a $911m deficit without the fund's returns, Mr Mookhey said.
He said the government would in future exclude these returns, which could only be used to retire debt, from future budget results to create a clearer picture on the resources available to fund services and infrastructure.
The fund was created when NSW was in surplus and interest rates were low.
Mr Mookhey said no superannuation fund would use the same strategy of borrowing money to invest, adding that revenue from state-owned corporations and royalties budgeted to go into the fund could be redirected to pay for essential services.
The operation of the fund would be referred to a parliamentary committee for a short inquiry, he said.
Shadow treasurer Damien Tudehope said the announcement could indefinitely suspend contributions towards the state's sovereign wealth fund.
"The suspension of contributions to the fund is like suspending contributions to our own superannuation funds - no one would do that," he said.
