Our fiscal challenge - chapter 6

Our fiscal challenge 

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2021-22 NSW Intergenerational Report, chapter 6 - Our fiscal challenge

[Speaker]

The NSW government's expenses are expected to grow at a faster rate than our revenue, creating a fiscal gap. Boosting productivity and workforce participation will help address this. If the women's workforce participation rate increased to be the same as men's over the next 20 years, the economy would be 8% larger by 2061. Other opportunities include: 

• lifting education and training standards
• continuing to focus health services on prevention and early intervention, and 
• modernising the state's revenue base. 

Working with the commonwealth government, we can achieve more effective migration policies to grow the population, improved funding agreements and a fairer more reliable flow of GST revenues.

[music]

Without action to address the structural imbalance between revenue and expense growth, the State’s long-term fiscal position will deteriorate. By 2060-61, we project the fiscal gap to reach 2.6% of Gross State Product (GSP).

This gap means that governments will be increasingly reliant on borrowing to fund the delivery of services and infrastructure, with net debt projected to reach 100% of GSP by 2060-61. The NSW Generations Fund, however, will provide a substantial pool of assets that future generations can use to help manage any build up in debt.

There are a range of policy opportunities open to government to lift economic growth and address the fiscal challenge. Measures include: 

• boosting workforce participation and productivity
• continued improvements in our health and education systems 
• modernising the State’s revenue base, and 
• reforms to GST and Commonwealth-State funding arrangements.

By 2061

Insights and opportunities

• The fiscal gap is projected to reach 2.6% of GSP in 2060-61. This is equivalent to around two-thirds of the current health budget or almost all of the current education budget.  
• As a result of this gap, our net debt position is projected to reach 100% of GSP, or around $125,000 per person in NSW (in today's dollars), by 2060-61.
• There are a range of opportunities available to government to address the fiscal gap. To indicate the potential size of some of these opportunities:
  1. A 0.1 percentage point increase in annual productivity growth to 1.3% could reduce the fiscal gap to around 2.3% of GSP. An increase in productivity growth to 1.4% could decrease the fiscal gap even further, to 1.9% of GSP.
  2. If we were to close the workforce participation rate gap between women and men over the next 20 years, by 2060-61 the total participation rate would be 66.3% (around 5 percentage points higher than baseline projections) and the fiscal gap lower by around 0.7 percentage points at 1.9% of GSP.