Report by Dr Stephen Bartos

An Assessment of Public Policy Implications of Decisions in relation to the NSW Generations Fund and NSW Government Debt

Note on author: Stephen Bartos was NSW Parliamentary Budget Officer in both 2015 and 2019, responsible for costing election policies. Between 1998 and 2003 he was Deputy Secretary of the Commonwealth Government’s Department of Finance and Administration, responsible for budget estimates, policy costings, accounting policies, financial management reform, government business enterprises and related tasks. He is a former Professor of Governance at the University of Canberra, and former head of the National Institute for Governance¹.

Executive Summary

This paper finds that there is a reasonable basis to believe that the NSW government is raising debt to invest in the NSW Generation Fund’s Debt Retirement Fund (DRF). Past contributions to the DRF have primarily come from NSW reserves and the proceeds of the sale of 51% of WestConnex.

Raising more debt than is required to meet the NSW budget deficit financing requirement appears to be in conflict with the intended purpose of the DRF to reduce the State’s debt.

Although the NSW Budget focuses on net debt, gross debt is an important measure of financial sustainability. Incurring higher levels of gross debt than necessary is a problem for intergenerational equity, exposing future generations to higher risks in the face of adverse interest rate movements.

So far the NSW Generations Fund (NGF) has failed to fulfil its intended “dual-purpose” of (1) repaying debt and (2) using up to half of the investment returns to enable the MyCommunity Dividend program. It would appear that only a very small fraction of the NGF’s earnings has been dedicated to community projects.

In the current climate of the NSW government running a budget deficit and high levels of debt, a more cautious and prudent risk management approach would be to use the NGF for its intended purpose of reducing debt and funding community projects. I also note that it appears that the cost of NSW government debt is rising because of the sheer quantity of debt that NSW is proposing to issue.

As a policy response, it would be straightforward and reasonable for the Treasurer, as the responsible NSW Minister, to clarify that the government does not intend to raise additional borrowings solely for application to the NGF’s DRF.

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¹Note: This paper does not constitute legal advice, and does not purport to address legal issues. It is based on my expertise in public policy and finance, with experience in senior positions advising on budget and fiscal policy and related issues at both Commonwealth and NSW level.