New investments and a decline in stamp duty revenue will take a toll on the NSW government's state finances, with the budget surplus tipped to fall in the year ahead.
The NSW government has forecast average surpluses of $1.6 billion a year over the four years to 2021/22, trending down from $3.9 billion for the current 2017/18 financial year to $1.4 billion in 2018/19.
New investment in health, education and public transport, as well as a decline in property transfer duty revenues will drag the surplus down.
NSW Treasurer Dominic Perrottet said the surplus revealed Tuesday's budget is $600 million higher than projected in the half-yearly budget review in December.
"This better-than-expected result is due to increased investment returns, higher GST pool receipts and growth in other revenues like mining royalties," Mr Perrottet said.
Improvements in GST receipts and mining revenue in the current year offset a drop in stamp duty revenues - due to a cooling housing market and first-home buyer concessions.
Transfer duty revenues, which make up 11 per cent of total revenue, are forecast to be $1 billion lower than expected in last year's budget and a decline of $5.5 billion in the three years to 2020/21.
The downward revision is due to falling house prices and auction volumes and a shift away from investors to first home buyers after the government last year announced cuts to transfer duty on property and insurance in a $4.3 billion housing affordability package.
"While the revision is significant in dollar terms, revenue growth has been strong for an extended period, and the downturn is moderate compared with historic variations in transfer duty," the government's budget papers said.
Residential property transfer duty, which provides the vast bulk of the state's duty revenue, is expected to fall 10.9 per cent in the upcoming year with the housing market cooling more quickly than previously forecast.
The nation's housing market is slowing after years of rapid growth, with recent official statistics showing residential property prices across the eight capital cities rose five per cent in the year to December, compared to an 8.3 per cent annual growth rate just three months earlier.
The loss of momentum in the housing market is expected to see house prices remain soft over the next two years, weighed down by tightening credit conditions and better housing supply, according to the NSW government.
The state also expects net debt to reach a record low of negative $9.8 billion at June 30, driven by proceeds from the Snowy Hydro sale.
Meanwhile the NSW government has increased the payroll tax threshold from $750,000 to $1 million over the next four years.
The increased threshold will reduce the number of NSW small businesses subject to payroll tax - which includes salaries, superannuation, bonuses and fringe benefits paid to NSW workers - by around 2,000 in 2018/19.
NSW GOVERNMENT'S FINANCES AT A GLANCE:
* Projected surplus of $3.9bn in 2017/18
* Projected surplus of $1.4bn in 2018/19
* Projected total revenue of $80.5bn in 2017/18
* Projected total revenue of $81.1bn in 2018/19
