Phone:
(02) 9877 0266
Phone:
Address:
Suite 303, Level 3, 51 Rawson Street, Epping
Address:
Show in maps

FacebookInstagramLinkedInTwitter

Economic & Fiscal Update: Response Turns to Recovery

16 Jun 2020

A few weeks ago, at Foodbank in Blacktown, I met a mum of three young children.

After decades of hard work, she and her husband invested their life savings to pursue their dream – opening a travel agency earlier this year.

Their timing could not have been worse.

When we last spoke, she hadn’t earned a single dollar in more than two months.

Her husband lost his job – neither qualified for JobKeeper or JobSeeker.

And her 9 year old daughter recently took Tiny Teddies out of her school lunchbox, telling her mum that they needed to save their food.

After driving around the state applying for 50 jobs that turned up nothing, she’d come to Foodbank to get some essentials.

This working family had never relied on welfare before – and never dreamed they would have to.

But for them – and for hundreds of thousands of others – COVID-19 has changed everything – and now we all face testing times.

Today would have been Budget Day.

The day we unveiled the next chapter in our state’s unfolding story as a financial and economic powerhouse.

Our 6th straight surplus.

The lowest net debt and unemployment rate of any state.

The biggest building blitz of public schools, hospitals and transport our nation has ever seen.

But our Budget isn’t just numbers on a page.

It’s a living reflection of the working men, women and families across our state.

And right now – they’re doing it tough.

 

A threefold crisis

The last 12 months have been up there with the toughest ever.

First, came drought – the worst in a century – with dams depleted and regional communities on the brink.

We deployed our financial strength, with more than $2 billion in relief and assistance.

Then came bushfires – the worst natural disaster in our history.

10,000 properties destroyed or damaged.

Entire towns evacuated.

And 25 lives cut tragically short.

Once again, our strong finances delivered around $2.4 billion in relief and recovery, in partnership with the Commonwealth.

But before the fires had even stopped burning, NSW recorded its first case of COVID-19.

Five months later, this pandemic has left a global trail of devastation.

Entire nations locked down.

Cities completely overwhelmed.

Hospitals pushed beyond their limits.

And hundreds of thousands of victims.

We are grateful the horrors seen in other places have not made their way here.

That is a credit to the law abiding citizens of NSW – who have done the right thing to keep the virus contained.

But it also reflects a strong response from state and federal governments – to safeguard our people’s health and security.

And a special tribute must go to the Premier, who has guided our state through all these challenges with a steady hand and caring heart.

 

A decisive response

NSW could again respond decisively because we began from a position of strength.

First, we boosted our health system.

We doubled ICU capacity, reinforced ventilator stocks and established a network of clinics.

We rolled out the nation’s fastest and most comprehensive testing regime – with around 650,000 tests so far.

We provided training for thousands of additional nurses, and provided free accommodation and parking to keep them safe and secure.

We invested in research and innovation, and rapidly rolled out mental health support.

But COVID-19 is not just a health crisis, it’s an economic crisis too.

From day one, our goal has been clear.

To keep people in jobs and businesses in business.

So we launched an unprecedented and unparalleled response:

  • Over $4.5bn in payroll tax relief for businesses big and small.
  • A 25 per cent reduction in the payroll tax bill for SMEs, and bringing forward tax cuts by a year.
  • $10,000 support grants for businesses below the tax threshold.
  • $440 million set aside for land tax reductions, to reduce rent for tenants in need.
  • And $420 million in workers compensation premium reductions.

This has all been done in collaboration with industry to provide the cashflow necessary to keep as many people in work as possible.

Our $1 billion Working for NSW fund has protected jobs and created more – funding thousands of cleaners to keep public services safe, and 1,000 more Service NSW staff to provide frontline support.

We have brought forward half a billion dollars in shovel and screwdriver-ready projects – upgrading schools and hospitals, showgrounds and courthouses, social and affordable housing, roads and community facilities right across the state.

There’s been direct support for sectors that need it most.

Loan guarantees on offer to our university sector.

Support for councils to keep workers on.

And direct assistance to the Arts, international students and transport sectors.

For the vulnerable, more than $100 million in additional funding to prevent and alleviate homelessness. 

There’s been Energy bill relief, domestic violence support and funding to assist temporary visa holders and refugees.

And a dedicated fund for charities – like Foodbank – providing relief and other vital support to those in crisis.

These targeted initiatives – and many more – take our total COVID-19 response to over $13.6 billion – the largest state response in the country by far.

 

Outlook

As we enter a national recession, our pandemic response has helped mitigate the damage.

But there is no avoiding the economic crisis gripping the globe.

After a run of strong growth, the NSW economy is expected to contract by around 10 per cent in the second half of the 2019-20 fiscal year.

Household consumption and service exports have been heavily affected, particularly tourism and international education.

Border closures have brought immigration to a halt.

Short-term visitor arrivals plummeted by 99.7% over the year to April, with student arrivals dropping by close to 100%, with only 10 international students arriving in April. 

Business and consumer confidence slumped to record lows. 

Commonwealth JobKeeper data shows 35 per cent of applications for April and May are from NSW – when our population share is only 32 per cent.

Applications are highest in some of our state’s most important sectors – like construction, and professional services.

As Australia’s gateway to the world, it’s no surprise that NSW has been hardest hit – and we see it in the job losses too.

The massive queues outside Centrelink give this crisis a human face.

Across the nation, more than half a million people lost their jobs in April.

More than 37 per cent were in our state.

Young female workers especially have been disproportionately impacted.

And we expect to see around 275,000 fewer people employed in NSW in the 2020 June quarter.

This would lift the state’s unemployment rate to around 7¾ per cent – almost double last year’s record low.

This number would have been much higher but for the support measures of the NSW and Federal governments.

After an initial bounce, the recovery in economic activity is expected to be gradual.

The uncertain outlook and low consumer confidence will likely mean people will save more.

The National Accounts for March already show the household savings rate increased from 3.5% to 5.5% in a matter of months.*

Higher unemployment – and underemployment – means wages growth is expected to be lower over the next four years. 

Across the private sector, pay freezes – and in some cases, actual cuts – are occurring to minimise job losses.

These factors – and others – are expected to contribute to annual headline inflation falling into negative territory this quarter – the first time in 23 years.

All this has consequences for the NSW Budget.

Higher unemployment and lower production and consumption will hit payroll tax, GST, land tax and transfer duty. 

Relative to forecasts published in the 2019-20 Half-Yearly Review, current estimates are for tax revenue to fall by as much as $20.3 billion across the five years to 2023-24.

It’s likely the State Budget will record significant deficits for at least this year and the next – but I want to caution that forecasting is extremely challenging in the current environment.

We will continue to assess the rapidly changing fiscal situation, and provide a revised outlook when we hand down the budget in November.

After months of bad news, it is easy to become desensitised.

But we need to be very clear.

Our state is in for a testing time – what some are calling the worst downturn since the Great Depression.

In these circumstances, politics must take a back seat to the common good.

 

Recovery

What happens next is up to all of us.

Today we signal to the people of NSW – a shift in direction, from response to recovery.

It’s time to get the show back on the road.

From July 1 the vast majority of our new, socially distanced economy will be back open for business.

We must be agile, we must be safe, and we cannot afford a foot out of place. 

The biggest thing we can do for business and consumer confidence is to get people back into work.

So far almost 50,000 businesses have applied for $10,000 grants to support them during the pandemic. 

Today I can announce that from 1 July, an additional Small Business Recovery Grant will provide up to $3,000 to help SMEs adapt to life in the “four square metre” economy.

It will cover costs like fit-out changes, cleaning equipment, staff re-training and digital transformation – so more businesses can make it – safely – in the post-pandemic world.

Another important pillar of support for families getting back into the workforce is childcare.

Today I can announce that community pre-schools will remain free until 30 September – allowing over 700 preschools to provide care to 45,000 children.

With constrained fiscal capacity, and new challenges ahead – now is not the time for reckless spending.

But it is not the time for severe austerity either.

We will strike the right balance – supporting growth, while charting a measured course towards fiscal repair.

Our strong balance sheet and Triple-A credit rating mean we have more freedom than other states to access the funds we need.

But we must make every dollar count – with targeted spending that gets results.

Some people believe cutting red tape, regulation and tax cuts is the only way out.

Others say only direct Government stimulus and intervention can help.

We are not interested in ideology – we are only interested in what works.

Our five point Recovery plan will focus on deregulation, productivity, tax reform, digitisation and trade and investment.

We will seek to ensure government is an enabler – not an obstacle – to growth. 

This means looking at making permanent some of the temporary regulatory changes we’ve announced, as well as fast tracking projects that grow our economy.

We have one goal above all: to create jobs to get NSW working again. That’s what success looks like.

We will also press on with infrastructure and invest further in targeted and temporary stimulus measures where required.

This is why we have sent a strong signal of confidence to industry, increasing our massive infrastructure build to over $100 billion at a time when others are winding back.

Based on advice from our Chief Economist, we will also target further support at key sectors: 

  • Construction – which faces challenges as work dries up
  • Skilling and training to prepare workers for the future
  • And helping tourism, retail and accommodation get back on their feet.

Just a week ago we announced $3 billion in direct stimulus, to kick off projects in schools, hospitals and roads across NSW.

Our plan is already working and we can see it on the ground. 

Yesterday I visited a social housing estate in Arncliffe and saw firsthand the impact of our measures, delivering refurbished homes for 142 tenants. Our support is achieving social and economic outcomes at the same time.

One of the workers – told me that thanks to this program, he and his entire team were able to stay in work which meant he could provide for his family.

We have said we will put the economy before the budget – but we will not abandon responsible fiscal management.

On that front our commitment has never been stronger – and our track record shows we know how to deliver.

We will make every dollar count, facing up to difficult spending choices.

Our outcomes budgeting framework will focus spending where it can have the greatest impact.

And we will continue to consider asset recycling opportunities where they represent best value for the people of NSW.

Reform is also critical – to turn adversity into advantage.

A Green Paper from the NSW Productivity Commissioner will be a launchpad to build on reforms already achieved in response to the crisis.

And the Federal Financial Relations Review, chaired by David Thodey, is also set to release its report in a matter of weeks.

This can define the conversation on how to build a better Australia, where taxes are lower, fairer and more sustainable.

The pandemic doesn’t just provide an opportunity to reform, but an obligation to reform.

 

Conclusion

These are testing times.

But our state has faced tests before.

Drought and disease. Fire and flood. Terror and tragedy.

And through it all we have learned that there is nothing that we cannot overcome if we face it together. 

Our budget may be bruised, our economy may be battered, but our spirits are unbeaten.

The strength of our state isn’t measured by the state of our finances – it’s measured in the dreams and the determination of our people.

Since the bushfires began, the people of NSW have stood up, stood tall and stood together.

I want to conclude by thanking them – and everyone who has pulled together to get us through.

Let me end where I began.

Today I called to check in on that mother I met at Foodbank.

After a marathon search, she’s finally found a new job.

She said last week she had nothing, but this week she’s getting back on her feet.

Her story is our state’s story. 

Her hope is our state’s hope.

She starts next week. 

We start today.

Share this article: