From Moody’s comes this skpetically toned take on the NSW Budget:
Sydney, June 12, 2012 — Moody’s Investors Service notes that — according to New South Wales’ just released 2012/13 budget — the state’s financial performance is expected to deteriorate in 2012/13 with a deficit (net lending/borrowing result) projected to equal 5.8% of revenues, up from an estimated 4.8% registered in 2011/12. The projected result reflects much slower than anticipated growth in Goods and Services-backed Commonwealth grants and the timing of Commonwealth economic stimulus funding. Moody’s notes that record high capital expenditures are also contributing to the budget gaps.
Going forward, the state has forecast that its financial performance will improve with a steady narrowing in deficits (net lending/borrowing result), averaging a more moderate 3.5% of revenues and nearing balance in 2015/16 when a minor deficit equal to 0.8% of revenues is forecast.
However, these projections are predicated upon relatively healthy growth in tax revenue which, while not unreasonable, injects some risk to budget outcomes. Furthermore, Moody’s considers that the state’s expenditure targets—set to rise by only 3.3% annually—will be challenging to meet. Their achievement relies upon keeping total employee costs (including salaries, numbers of positions, superannuation, etc.) to a low 2.2% rate of growth, which is considerably below the 6.0% rate registered over the past four years.
Critical to meeting lower employee costs is the state’s new “Labor Expense Cap” which aims to reduce the rate of growth of total
compensation–except for teachers, nurses and police officers–by 1.2% a year over four years. This is in addition to the state’s existing wage policy, which targets a 2.5% limit to increases, and is also important to achieving lower expenditure growth.
As part of its normal monitoring process, Moody’s will evaluate the 2012/13 budget’s assumptions, its potential for upside and downside risks, the state government’s resolve to implement expenditure controls, and the likely impact of additional asset sales on the state’s debt burden.
This announcement represents an update to markets and does not constitute a rating action.
