Date posted: 30/06/2022

New South Wales State Budget 2022-23 Overview

The Perrottet Government’s first budget sets out a bold reform agenda to increase equity, productivity and participation ahead of the next state election.

In brief

  • Property tax reform, land tax changes and payroll tax exemptions announced.
  • Major investments in health, housing, women, early childhood education, energy and infrastructure.
  • A deficit of $11.3 billion is forecast for 2022-23, returning to a surplus of $601 million by 2024-25.

The 2022-23 New South Wales State Budget, delivered on 21 June by Treasurer Matt Kean, sets out a vision and blueprint for bold economic reform ahead of the next state election on 23 March 2023.

The NSW economy has recovered well from the impacts of COVID-19 and natural disasters. This strong momentum is expected to continue, with above trend economic growth of 4.25% forecast for 2022-23.

A strong labour market is expected to drive wage growth. In the public sector, this is supported by a new wages policy which increases remuneration by 3% per annum in 2022-23 and 2023-24, with an additional 0.5% offered in 2023-24 for substantial contributions to productivity enhancing reforms.

The budget deficit of $11.3 billion projected for 2022-23 is more than triple the $3.6 billion forecast in the 2021-22 half-yearly review.

This reflects the NSW Government’s $4.5 billion investment in the state’s health system, $2 billion for additional COVID support, $3.5 billion in joint NSW and Commonwealth funding for the flood response and recovery, $7.2 billion for cost of living measures to support households, and other significant investments to boost productivity and participation.

Government expenditure is expected to decrease as stimulus program funding is phased out and the State’s economy recovery continues.

A return to surplus of $601 million is projected for 2024-25, increasing to $1.4 billion by 2025-26. This will build capacity to respond to future shocks, and support future investment and reform.

Net debt is forecast to increase to $78.2 billion in 2022-23 and stabilise at $114.8 billion by June 2026.

The NSW Government has committed to stabilise net debt and maintain it at sustainable levels through a fiscal repair program. Budget improvement measures of $2 million in 2022-23 will also support fiscal sustainability and a return to surplus.

Investing in economic reform

The budget prioritises investments in five pillars of reform:

1. Women’s opportunities

This involves $4.9 billion over four years ($16.5 billion over 10 years) to help increase women’s workforce participation and economic opportunities, and close the gender pay gap.

Highlights include $1.3 billion for preschool fee relief and $775 million over four years ($5 billion over 10 years) to increase access to affordable childcare, which is a key enabler of workforce participation.

2. Early childhood education

Funding of $3.8 billion over four years for early childhood education and development will include a high-quality, universal pre-kindergarten program for all children in the year before school by 2030.

3. Secure and affordable housing

A $2.8 billion housing package over four years aims to increase housing supply across NSW, fast-track critical infrastructure and provide financial relief for first home buyers. This includes funding for new and upgraded social and First Nations housing.

A key housing affordability initiative is the $780.4 million shared equity scheme, which is open to up to 6,000 eligible single parents, older singles and key worker first home buyers.

In a two-year trial planned to begin in January 2023, the NSW Government will make an equity contribution of up to 40% of the purchase price of a new dwelling, and up to 30% of the purchase price of an existing dwelling, in exchange for an equivalent ownership share of the property.

4. The future economy

Up to $1 billion is committed for science, technology and research infrastructure, and establishing innovation precincts across the state.

5. Environment and the clean economy

The transition to renewable energy will be accelerated with a $1.2 billion investment, as well as $1.5 billion to reduce emissions, boost biodiversity and increase resilience to climate change.

These investments are expected to generate economic and fiscal returns over the medium to long-term.

Infrastructure is also identified as a key driver of long-term growth, with a record $112.7 billion over four years included in the budget.

Key tax revenue measures

Here are the key tax revenue measures announced in the budget to help members guide their clients and businesses.

1. First home buyer property tax option

Eligible first home buyers who purchase a property for up to $1.5 million will now have an option to pay an annual property tax instead of paying transfer duty upfront.

The property tax will be based on the property’s unimproved land value.

In 2022-23, the annual property tax rates will be:

  • $400 plus 0.3% for owner-occupiers; and
  • $1,500 plus 1.1% for residential investors.

The rates will be indexed each year to ensure that average property tax payments grow in line with average incomes.

Properties will not be locked into the property tax. Transfer duty will apply to a subsequent purchase, unless the purchaser is a first home buyer who opts into the property tax.

A deferral scheme will be in place to ensure that no one facing hardship will be required to sell their home to meet property tax liabilities.

Eligible first home buyers will be able to opt in to pay land tax from 16 January 2023.

For contracts exchanged between the date of enactment of the legislation and 15 January 2023, eligible first home buyers will be able to apply to opt in and receive a refund of transfer duty paid from 16 January 2023.

2. Reduction in the discount available for early payment of land tax

From 1 January 2023, the discount for early payment of land tax will reduce from 1.5% to 0.5% for taxpayers who pay their land tax in full within 30 days after service of the notice of assessment.

3. Increase to the foreign investor surcharge land tax

From the 2023 land tax year, the surcharge land tax payable on residential land owned by foreign persons will double from 2% to 4% of the taxable value of all residential land owned as at midnight on 31 December 2022.

4. Payroll tax exemptions under a subprogram of the Future Economy Fund

A subprogram of the Future Economy Fund will offer grant payments and payroll tax exemptions to encourage businesses in ‘future industries’ to establish or expand in NSW.

From 1 July 2022, the payroll tax rate for businesses will revert to 5.45%, up from 4.85%.

Since the NSW Government is expecting payroll tax to overtake stamp duty as the largest source of state revenue, due to a slow-down in the residential property market, taxpayers can expect an increase in audit activity and a continued focus on compliance by Revenue NSW.

5. Additional compliance investment for land tax and transfer duty

Additional compliance investments of $60 million by Revenue NSW for system upgrades and improved data management will increase land tax revenue by $368 million and transfer duty revenue by $200 million over four years to 2025-26.

6. Increase to the point of consumption (PoC) tax and changes to other betting taxes

From 1 July 2022, the PoC tax rate will increase to 15% and the effective betting tax rates charged under the Betting Tax Act 2001 (the Act) will be adjusted to 15%.

The basis for calculation of the amount of industry funding under the Act will also change from 2% of net taxable NSW wagering revenue to 33% of PoC tax revenue collected during a financial year.

Related reading

2022-23 New South Wales Budget papers

Read more

First Home Buyer Choice

Changes to the NSW property tax system will give eligible first home buyers the choice between paying an annual property tax or stamp duty

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Shared equity scheme

The NSW Government’s shared equity trial scheme to support home ownership

Read more

Foreign Owner Surcharge land tax

Read more

CA ANZ’s Federal Budget coverage

Read more