"The Australian Newspaper today reported that the NSW budget was a little weaker than was expected in December 2010/11 Half Yearly review. The 2010/11 result is +198m better (+365m), the 2011/12 result is +28m better (+204m); the 2012/13 result is 837m worse (-405m); and the 13/14 result is 1320m worse (-1191m). The reports include the first public estimate of 2014/15: a deficit of -2.3bn...
The deficits quoted above are for the general government sector. If we make the most pernicious assumptions we are able to push the ratio of NSW’s net financial liabilities to 121% in 2014/15. S&P has previously said the 120% to 130% area is the danger zone for NSW’s AAA rating...
Notwithstanding that we have almost certainly been too pessimistic in calculating the ratio of liabilities to revenues, there are valid (medium term) reasons for concern. Foremost, the ratio of financial liabilities to revenue is not only increasing, but on present forecasts it is getting worse at an accelerating pace. Second, it is not sound practice to debt finance shortfalls at the general government level (this is essentially debt financed government consumption)...
The new Government may cut spending, and conditions may improve relative to forecast. Thus, it’s possible for NSW to improve their fiscal metrics and thereby secure their AAA rating / stable outlook. However, a very large capital works program may be required if the Government is to deliver the improved public transport promised during the election campaign – and this may pressure the AAA."
