Source: Derived from audited TSSAs for the relevant years.

This is discussed further in section 3.1 General Government Sector budget result.

Employee-related costs continue to be the State’s largest single expense

Employee-related costs (including superannuation) account for 43.5% of the State’s total operating expenses in 2024–25 (42.9% in 2023–24), an increase of $2.8 billion or 4.9%.

The increase is primarily due to growth in public sector salaries and wages, higher full-time equivalent positions in education and health, and a 0.5% rise in the compulsory superannuation guarantee.

This is discussed further in section 3.3 Total state sector expenses.

Interest costs increased from $16.5 million to $19.6 million per day

In 2024–25, the GGS’s interest expense increased by $1.1 billion to $7.1 billion, mainly due to a $11.7 billion increase in the GGS’s borrowings. The GGS reported borrowings of $165.2 billion at 30 June 2025.

Interest is costing the GGS $19.6 million per day ($16.5 million per day in 2023–24).

Interest expense includes interest on borrowings and advances, lease liabilities, service concession financial liabilities and the unwinding of discounts on provisions.

This is discussed further in section 3.6 Fiscal responsibility and key aggregates.

The State maintained its credit ratings, however, S&P Global has indicated a risk of downgrade still exists

S&P Global maintained its AA+ credit rating while revising its outlook from stable to negative in November 2024. In March and November 2025, S&P Global reaffirmed its AA+ rating and maintained its negative long-term outlook, citing continued delays in fiscal improvement, which could occur because of weaker fiscal controls, softer revenue growth or larger spending needs than expectations, such as those related to natural disasters. The negative outlook also signifies a risk that the State's financial management or budgetary performance could weaken over the next two years. S&P Global has indicated there is a risk it could downgrade if the negative outlook doesn't improve.

In September 2025 the rating agency Moody’s reaffirmed the State’s Aaa rating with a stable outlook, noting fiscal deficits and high debt as concerns, but anticipating ongoing revenue growth and controlled expenditure to support fiscal stability.

In the same month the ratings agency Fitch reaffirmed the State’s AAA rating with a stable outlook, while also highlighting the State’s high debt burden.

The Government has committed to fully funding the State’s unfunded superannuation liability by 2040

The fiscal target in the Fiscal Responsibility Act 2012 (FR Act) is the elimination of the State’s unfunded superannuation liability by 2030.

The State’s current budget settings aim to fully fund this liability by 2040. The additional ten years needed to fund this liability was first announced in the State’s 2020–21 budget papers.

The State uses AASB 1056 ‘Superannuation Entities’ to measure the State’s unfunded superannuation liability for the purposes of tracking compliance with the FR Act. Under AASB 1056, the State’s unfunded superannuation liability was $19 billion at 30 June 2025 ($20.6 billion at 30 June 2024).

This is discussed further in section 3.6 Fiscal responsibility and key aggregates.

Source: 2020–21 to 2024–25 data were from past NSW budgets, NSW half-yearly reviews and audited TSSA. Data for 2025–26 to 2028–29 were from the 2025–26 NSW budget papers.

The last three years (2022–23 to 2024–25) reflect a closer alignment between the actual results and the original budgets. In 2020–21 and 2021–22 the results did not align with the budgets, due to several unforeseen factors that significantly impacted the economy, such as the COVID-19 pandemic and natural disasters.

The State has remained in deficit since 2019–20. The Government anticipates this trend will continue until 2027–28, with a forecast surplus of $1.1 billion.

Further analysis of the GGS’s expenses and revenue are included in subsequent sections.

General government revenue was $521 million lower than originally budgeted

The GGS’s revenue was $521 million lower than the original budget of $118.5 billion for 2024–25. This was due to the net effect of:

• a $1 billion lower than budgeted grants revenue that was mainly related to the Disaster Recovery Funding Arrangements with the Commonwealth of Australia. During 2024–25 agencies deferred expenditure, resulting in the deferral of associated revenue and payments into future years
• revenue from 'fines, regulatory fees and other' coming in at $596 million below budget, primarily due to reduced mining royalties associated with lower coal prices
• the above reductions being partially offset by $1.1 billion higher than budgeted revenue from ‘other dividends and distributions’, mainly driven by higher than expected returns received from NSW Treasury Corporation (TCorp) managed investment funds driven by strong market performance in 2024–25.

Source: 2024–25 NSW budget papers and audited 2024–25 TSSA.

General government expenses were $915 million higher than originally budgeted

The GGS’s expenses were $915 million higher than the original budget of $122 billion for 2024–25. This was predominantly because:

• employee and superannuation expenses were $857 million higher than budgeted, mainly driven by $863 million higher expenses in the NSW Self Insurance Corporation due to the newly introduced Enhanced Police Support Scheme
• other operating expenses were $700 million higher than budgeted with:
  • $432 million higher expenses in the NSW Self Insurance Corporation due to increased abuse related claims and rising costs across liability and property event portfolios
  • $338 million higher expenses in the Ministry of Health across suppliers, services and other operating costs.

The above increases were partially offset by a $1.3 billion reduction in grants and subsidies compared to budget. This was due to lower than expected disaster recovery expenditure resulting primarily from agencies deferring expenditure (refer to the earlier comment for the related impacts on grant revenue).

Source: 2024–25 NSW budget papers and audited 2024–25 TSSA.

Since COVID-19 general government expenses have been higher than revenue

The GGS's actual expenses have consistently exceeded revenue since the COVID-19 pandemic started in 2019–20, resulting in an aggregated $56.2 billion deficit over the six years to 2024–25.

Government policy decisions on employee and other costs in recent years, along with increased spending to respond to COVID-19 and natural disasters, have resulted in significant expenses in the GGS over the last six years.

Source: Actuals were derived from audited TSSAs for the relevant years. Projections are derived from the 2025–26 NSW budget papers.

Over the past three years annual revenue growth has exceeded annual expense growth

Since 2022–23, GGS revenue growth has exceeded expense growth, reversing a trend from previous years when expenses rose faster than revenue due to the Government’s response to COVID-19 and natural disasters.

The Government began its Comprehensive Expenditure Review (CER) in June 2023 to identify budget savings and cost reprioritisation measures. The 2025–26 budget papers indicate that the Government has completed a CER, which identifies $13 billion in savings, reprioritisation and other budget improvement measures. The budget papers state that more than $11 billion of these measures are complete or on track for completion, with the remaining underway or in planning.

In 2024–25, expenses increased by 1.8%, while revenue increased by 7.1%. The budgeted annual expenses and revenue growth for 2025–26 is 3.7% and 5.2% respectively.

An analysis of the State’s annual expense growth against its long-term average revenue growth is included in section 3.6 Fiscal responsibility and key aggregates.

Source: Actuals were derived from audited TSSAs for the relevant years. Projections are derived from the 2025–26 NSW budget papers.

Although the 2023–24 budget indicated a return to surplus in 2024–25, a $5.1 billion deficit was reported

The 2023–24 budget forecasted a deficit of $7.8 billion for 2023–24 and surpluses in the next three years. The graph below illustrates these forecasts against the actual results (where available) or the most recent forecasts in the 2025–26 budget papers.

Source: 2023–24 and 2025–26 NSW budget papers and audited TSSAs for the relevant years.

The actual deficits (or latest forecasts for the outer two years) for all five years included in the 2023–24 budget papers are all larger than originally forecast.

The 2023–24 budget predicted a return to surplus in 2024–25, but an actual deficit of $5.1 billion was reported. The 2025–26 budget papers project the operating deficit to decrease to $3.4 billion in 2025–26 and $1.1 billion in 2026–27, with a return to surplus in 2027–28 (three years later than originally budgeted).

S&P Global's future credit ratings for the State will consider the Government’s ability to deliver on its budget commitments – particularly in relation to controlling expense growth, narrowing its net borrowing requirements and stabilising debt levels.

This is discussed further in section 3.6 fiscal responsibility and key aggregates.

Source: Audited 2024–25 TSSA.

As in 2023–24, the State’s three main sources of revenue in 2024–25 were grants and subsidises, taxation, and sale of goods and services. They comprised 90% of total revenue in 2024–25 (90.3% in 2023–24), with most revenue being generated from the GGS.

The chart below shows the trend in the State’s revenue streams over the past five years. During this period revenue grew by an average annual rate of 7.9%. Taxation revenue has recorded growth for five consecutive years, reflecting the increased value of the property market.

Source: Audited TSSAs for the relevant years.

Taxation revenue increased by 8.1%

Taxation revenue increased by $3.6 billion (8.1%) in 2024–25. This was driven by the following increases:

• $1.2 billion in land taxes due to a rise in average land values, predominately in the residential and commercial sectors
• $909 million in stamp duty taxes due to higher property prices
• $863 million in payroll taxes driven by annual wage growth (including superannuation) of 3.7%.

Other dividends and distributions grew by 38%

Other dividends and distributions increased by $547 million to $2 billion in 2024–25. This was largely driven by $338 million of distributions received from the State's investment funds.

In 2024–25 the State restructured its investment portfolio under OneFund, with investments in the fund valued at $62.4 billion of the State's assets. The increase in distributions reflected more favourable market conditions compared with those in 2023–24.

Grants revenue increased by $934 million

Grants revenue increased by 2% in 2024–25 to $46.9 billion. This was largely due to the following changes to Commonwealth grants:

• a $1.1 billion increase in Commonwealth National Partnership Payments driven by an extension of the Energy Bill Relief Fund until 2025–26
• a $688 million increase in Commonwealth specific purpose and other payments primarily relating to additional funding for the national health and education reform agreements
• a $566 million reduction in Commonwealth general purpose payments mainly driven by lower GST distribution received by the State.

Sale of goods and services revenue increased by $797 million

Sale of goods and services revenue grew by $797 million (4.7%) to $17.9 billion in 2024–25. This included:

• a $251 million increase that was mainly due to higher contributions paid by private health insurers as they resumed paying the full single rate for eligible members in public hospitals, as well as higher cross-border payments from other states which led to a 7.2% rise in the National Efficient Price
• a $138 million increase that was mainly due to rising energy tariffs for residential and small business customers resulting from higher inflation and lower consumption.

Source: Audited TSSAs for the relevant years.

As show above, expenditure for these four functions of government remained relatively stable over time, except for 2021–22, when a greater proportion of expenses was incurred in delivering general public services during the COVID-19 pandemic.

General public services expenses increased in 2023–24 and 2024–25 (from the post-pandemic levels), mainly due to higher interest costs relating to TCorp borrowings to fund the State’s infrastructure projects.

Source: Audited 2024–25 TSSA.

The change in the carrying value of the State’s physical assets was primarily driven by current year additions of $28.2 billion and net revaluation increments of $14.5 billion, partially offset by depreciation of $11.8 billion and disposals/write-offs of $2 billion.

The three agencies with the largest revaluation increments in 2024–25 were:

• the NSW Land and Housing Corporation – a $4.5 billion increase primarily driven by higher residential property values following a comprehensive revaluation and the application of a market movement index
• Transport for NSW – a $3.6 billion increase after completing a rolling comprehensive revaluation of selected infrastructure asset classes (including land under roads, tracks and maritime assets) and the application of a market movement index to other asset categories (including tolled motorways)
• the Department of Education – a $1.5 billion increase mainly due to increases in the value of land and buildings following the application of a market movement index.

Increases in the value of physical assets are slowing as inflation drops

Most of the State’s physical assets are held by not-for-profit entities that value their assets using the cost method. Under this approach, an asset’s fair value is estimated using current replacement cost, representing the cost of obtaining a modern equivalent asset capable of replacing the service capacity of the existing asset.

One of the key factors in this approach is the rate of inflation, which is measured by the Consumer Price Index (CPI). Movements in the CPI impact the costs needed to replace the existing asset measured in today’s dollars. The chart below shows the relationship between the net revaluation increments reported by the State and the annual changes in the CPI for Sydney percentage and the Producer Price Index – Construction for NSW over the last five years.

As the CPI for Sydney percentage increased from 2021 to 2023, the State recorded larger revaluation increments. However, in 2024 and 2025 lower increases in the CPI for Sydney percentage resulted in smaller revaluation increments. Higher asset values also typically result in higher annual depreciation expenses recognised by the State.

* The net revaluation increment reported in the TSSA has been adjusted to exclude the impacts relating to changes in the Transport Asset Manager of NSW’s valuation methodology (revaluation decrement of $20.3 billion in 2021 and revaluation increment of $31.1 billion in 2024).

Source: Audited TSSAs for the relevant years and the CPI for Sydney (%) and Producer Price Index – Construction for NSW (%) for the relevant years.

NSW Treasury is undertaking a depreciation and revaluation project aimed at enhancing consistency, effectiveness and efficiency in the revaluation process across the sector

PPE revaluations are complex and have become more volatile due to inflation spikes in recent years.

NSW Treasury is undertaking a depreciation and revaluation project to explore potential changes to the State’s revaluation processes. The aim is to improve the consistency, effectiveness and efficiency of year-end financial reporting and budget policies and processes.

The project involves multiple streams of work, including reviewing current budget guidance and processes, and NSW Treasury’s accounting policies and procedures relating to PPE valuations. A consultation paper was issued to the sector in June 2025 to gather feedback on the proposals.

NSW Treasury assessed feedback from agencies during the consultation and released a draft update of the Treasury Policy Guidance on ‘Valuation of Physical Non-Current Assets at Fair Value’ (currently TPP21-09) to the sector for additional feedback in October 2025.

NSW Treasury expects the new policy to apply to valuations and financial reporting for the 2025–26 financial year.

The State’s financial assets decreased by $16.8 billion

The State’s financial assets decreased by $16.8 billion to $176 billion at 30 June 2025.

Over the year:

• the fair values of investments and placements held through TCorp Investment Management (TCorpIM) Funds decreased by $12.5 billion and the fair value of equity investments increased by $9.1 billion, largely due to transfers between asset classes arising from changes in investment strategy
• cash and cash equivalents decreased by $4.7 billion mainly due to:
  • $11.2 billion of net cash used in financing activities
  • $3 billion of net cash used in investing activities
  • partially offset by $9.5 billion of net cash flows generated from operating activities
• receivables decreased by $8.7 billion mainly due to a decline in receivables relating to unsettled investment sales in TCorpIM funds at year-end.

* Source: Past expense growth data derived from audited TSSAs. Projected expense growth data and long-term average revenue growth target from the 2025–26 NSW Budget Papers.

The 2025–26 budget papers state that the forecasted average expense growth rate is 2.4% over the five years to 2028–29.

Risks relating to containing expenditure growth include inflation, ongoing wage negotiations and possible costs associated with natural disasters.

The Government has committed to fully funding the State’s unfunded superannuation liability by 2040

The fiscal target in the FR Act is the elimination of the State’s unfunded superannuation liability by 2030. The State’s current budget settings aim to fully fund this liability by 2040.

In response to fiscal pressures on the State’s finances due to the COVID-19 pandemic, the 2020–21 budget announced plans to amend the FR Act to change the target date. However, no legislative amendments have been made.

The State applies AASB 1056 ‘Superannuation Entities’ (AASB 1056) to measure the State’s unfunded superannuation liability for the purposes of tracking compliance with the FR Act. Under AASB 1056, the State’s unfunded superannuation liability was $19 billion at 30 June 2025 ($20.6 billion at 30 June 2024).

The State applies AASB 119 to measure the superannuation liability in the TSSA from the perspective of the employer. Under AASB 119, the State recorded $38.8 billion in superannuation liability in the TSSA at 30 June 2025 ($39.2 billion at 30 June 2024).

AASB 1056 and AASB 119 use different bases to measure the liability. For example:

• AASB 119 requires entities to discount employee liabilities (including unfunded superannuation) using the long-term Australian Government bond rate (4.2% in 2024–25; 4.4% in 2023–24)
• AASB 1056 discounts the liability using the long-term expected rate of return from the assets backing the liability (i.e. the long-term earnings rate), which was within the range of 5.7% to 7% during the financial year ended 30 June 2025 (5.9% to 7% in 2023–24)
• AASB 119 produces a higher liability because of the lower government bond rate compared with the long-term earnings rate and the impact of this on discount rates.

The State’s unfunded superannuation liability recognised under AASB 119 fell by $415 million, from $39.2 billion to $38.8 billion, over the 12 months ending 30 June 2025. This was mainly due to $1.9 billion of actual returns on fund assets, offset by $1.5 billion of actuarial losses arising from key assumptions and liability experience.

As shown in the graph below, the State’s unfunded superannuation liability recognised under AASB 119 has been falling since 2019–20.

Source: Audited TSSAs for the relevant years.

The unfunded superannuation liability calculated under AASB 1056 is $19 billion ($20.6 billion in 2023–24) using the funds' actual earnings rate. This is lower than the $38.8 billion unfunded liability of the State when calculated under AASB 119 which requires using the Australian Government bond rate to ensure comparability for financial reporting. The Government has committed to fully funding this liability by 2040.

Source: Audited TSSAs for the relevant years.

The State maintained its credit ratings, however, S&P Global has indicated a risk of downgrade still exists

Credit ratings are a measure of a borrower’s ability and willingness to meet its debt obligations. Owing to a lower perceived risk of lending, higher credit ratings may reduce the cost of borrowing and assist an entity when accessing financial markets.

S&P Global maintained its AA+ rating while revising its outlook from stable to negative in November 2024. In March and November 2025, S&P Global reaffirmed its AA+ rating and maintained its negative long-term outlook, citing continued delays in fiscal improvement, which could occur because of weaker fiscal controls, softer revenue growth or larger spending needs than expectations, such as those related to natural disasters. The negative outlook also signifies a risk that the State's financial management or budgetary performance could weaken over the next two years. S&P Global has indicated there is a risk it could downgrade if the negative outlook doesn't improve.

In September 2025 the rating agency Moody’s reaffirmed the State’s Aaa rating with a stable outlook, noting fiscal deficits and high debt as concerns, but anticipating ongoing revenue growth and controlled expenditure to support fiscal stability.

In the same month the ratings agency Fitch reaffirmed the State’s AAA rating with a stable outlook, while also highlighting the State’s high debt burden.

The following table summarises the most recently published credit ratings and outlooks for Australian state and territory governments.

In 2024–25 NSW and Western Australia achieved the highest possible credit rating (triple-A) from two independent rating agencies.

Key fiscal aggregates

AASB 1049 ‘Whole-of-Government and General Government Sector Financial Reporting’ (AASB 1049) and the ‘Uniform Presentation Framework’ (UPF) specify certain key fiscal aggregates to be reported by governments. These aggregates, covering both stock and flow measures, help to evaluate the soundness of a government’s fiscal position and the effect of fiscal policy on economic conditions. 

The UPF is an agreement between the Commonwealth of Australia, state and territory governments to present a common core of financial information in their budget papers, making it easier to compare financial results. The UPF is based on the Australian Bureau of Statistics' (ABS) Government Finance Statistics (GFS) framework and is broadly consistent with AASB 1049.

The following table shows selected key fiscal aggregates for the GGS over the past five years.

* Refer to section 3.1 for budget results.

** Net worth is an economic measure of wealth and is equal to total assets less liabilities.

*** Net debt equals the sum of interest-bearing liabilities (deposits held, borrowings, derivatives and advances received and certain other financial liabilities) less the sum of financial assets (cash and deposits, advances paid and investments, loans and placements).

Source: Audited TSSA for the respective years.

From 2020–21 to 2024–25, the GGS recorded persistent deficits, which reflected the fiscal impact of increased expenditure on health, disaster recovery and economic stimulus.

Net debt increased from $37.1 billion in 2020–21 to $105 billion in 2024–25, primarily due to the financing of the GGS’s major infrastructure projects.

Despite these deficits and rising debt, net worth increased by $139 billion from 2021–22 to $372 billion in 2024–25. This was primarily due to:

• increases in other economic flows including:
  • asset revaluation increments of $75.5 billion
  • a net gain on financial assets at fair value through other comprehensive income of $70.7 billion
  • remeasurement of post-employee benefits of $21.4 billion
  • a net increase in other items of $13.2 billion, including other net gains, share in associate’s other comprehensive income and others
• decreases in net worth due to deficits of $41.6 billion.

Movement in the GGS’s net worth from 30 June 2021 to 30 June 2025 is shown below:

Source: Audited TSSA for the respective years.

Over the past five years net and gross debt have increased by 184% and 81% respectively

Gross debt provides a view of the GGS’s overall liabilities and is an indicator of the scale of its obligations to creditors and financial markets.

Gross State Product (GSP) measures the value-add of goods and services produced within a state and is released annually by the Australian Bureau of Statistics.

Debt to GSP is an indicator of the State’s ability to service its debt relative to the size of its economy. Higher debt levels mean higher interest costs. When debt grows faster than GSP, interest costs can consume an increasing share of revenue, reducing funds available for essential services. Stabilising this ratio ensures that debt grows in line with economic capacity, preventing unsustainable borrowing that could lead to fiscal stress or credit rating downgrades.

The 2025–26 budget papers identified gross debt as a key target for stabilisation (20% of GSP) over the forecast period. Note that the gross debt is not one of the measures required in AASB 1049 or in the UPF and it is also not reported in the TSSA.

* Gross State Product (GSP) measures the value-add of goods and services produced within a state and is released annually by the Australian Bureau of Statistics.

** Gross debt is the sum of borrowings and derivatives at fair value, borrowings at amortised cost, deposits held, and advances received.

Source: NSW Budget papers and actuals for 2024–25 from audited TSSA.

Managing the GGS’s debt is important for maintaining the State’s triple-A credit rating (as required by the FR Act) and for controlling the interest expense.

Gross debt is forecast to reach $200 billion by 30 June 2029

Gross debt grew from $91.6 billion in 2021 to $166 billion in 2025 (14.2% to 19.5% of GSP).

The 2025–26 budget forecasts stabilisation of gross debt between 19.6% and 20.4% of GSP in the period 2025–26 to 2028–29. Gross debt is forecast to reach $200 billion (19.6% of GSP) by 30 June 2029.

Net debt increased from $37.1 billion to $105 billion between 2021 and 2025 (5.8% to 12.4% of GSP). Net debt is also projected to rise, but at a slower rate than gross debt. Net debt is projected to reach $134 billion (13.1% of GSP) by 30 June 2029.

The GGS’s interest cost increased from $16.5 million to $19.6 million per day

The GGS’s interest expenses increased by $1.1 billion in 2024–25 to $7.1 billion, which equates to $19.6 million per day ($16.5 million per day in 2023–24). Interest expense includes interest on borrowings and advances, lease liabilities, service concession financial liabilities and the unwinding of discounts on provisions.

This is largely due to a $11.7 billion increase in the GGS’s borrowings from $153.5 billion in 2023–24 to $165.2 billion in 2024–25.

The increase in the GGS’s interest expense indicates higher debt servicing costs compared to the previous year.

Debt servicing costs, as a percentage of GSP, are growing faster than the GGS’s revenue

Whilst the government forecasts a stabilisation of the GGS’s debt leverage, higher interest costs and reduced financial buffers (i.e. liquid assets such as cash, financial assets and advances paid) place further pressure on future budget results.

The graph below shows the trend of actual/forecast revenue and interest expense as a percentage of GSP from 2020–21 to 2028–29.

Source: Actuals from audited TSSA’s and budget and forward estimates from 2025–26 budget papers.

The 2025–26 budget papers state that forecast debt stabilisation relies on the GGS’s projections of a stronger cash position, plans to limit infrastructure spending to around 2% of GSP, and lowering borrowing needs.

The graph below shows capital expenditure as a percentage of GSP from 2019–20 to 2028–29 as presented in the 2025–26 budget papers.

* Capital expenditure comprises purchases of non-financial assets plus assets acquired using leases and assets acquired using service concession arrangements.

Source: Actuals from audited TSSA’s. Budget and forward estimates from 2025–26 budget papers.

As discussed earlier, the State’s ability to deliver on its budget commitments, including stabilising its debt levels, is important to maintain its credit ratings.