The NSW budget surplus forecast has increased by $600 million to $3.3 billion, Treasurer Dominic Perrottet says.
The projection for the 2017/18 year was revised upwards from $2.7 billion.
The state government's half-yearly budget review, released on Thursday, also revealed the first home buyers assistance scheme will cost $461 million this financial year.
Mr Perrottet says the decrease in transfer duty revenue is forecast to be $657 million lower over the forward estimates.
"The numbers we have out today fall within that expectation," Mr Perrottet said.
"A significant reduction in transfer duty is derived from our first home owners grants and the concessions and tax cuts that form part of that."
However, an increase in payroll and land tax will help offset the loss the government makes from the first home buyer concessions.
Strong employment growth is expected to drive payroll tax almost $190 million higher than initially forecast in the 2017/18 budget, Mr Perrottet said.
Meanwhile, higher-than-expected property values has pushed up the land tax revenue forecast by more than $100 million.
Mr Perrottet says he is confident the Sydney housing market will remain healthy.
"We see the property market remaining strong, we see completions continuing at record levels," Mr Perrottet told reporters.
The budget update also revealed the government's infrastructure investment had grown to $80 billion over four years - a figure Mr Perrottet pointed to when justifying the government's controversial $2 billion Sydney stadium spend.
"The $2 billion referred to in relation to the stadiums needs to be put in context to the $80 billion in infrastructure spending we are investing over the next four years."
However Greens treasury spokesman Justin Field says the government's infrastructure spend is being funded off the back of massive privatisation of state assets.
"The long-term impacts of privatisation in terms of gutting the public sector and driving up costs of electricity, education and other services are starting to hit home and cost of living impacts are rising," Mr Field said in a statement to AAP.
