2025-26 Half-Yearly Review
Overview
The 2025-26 Half-Yearly Review demonstrates continued improvement in the budget position while delivering significant commitments over the last few months, including:
- the public ownership of the Northern Beaches Hospital
- a permanent Toll Cap at $60 per week from 1 July 2026
- extension of the Preschool Reform Agreement to the end of 2027
- additional investment to respond and recover from natural disasters.
The 2025-26 Half-Yearly Review operating position is expected to improve by $0.6 billion over the forward estimates since the 2025-26 Budget. The government remains on track to return to a budget surplus in 2027-28, now projected at $1.3 billion.
The Government maintains its fiscal strategy outlined in the 2025-26 Budget and is stabilising the State’s gross debt at around 20 per cent of gross state product (GSP). This helps keep interest expenses manageable and supports the State’s operating position while the Government rebuilds essential services.
Average annual expense growth was 2.8 per cent over the two years to 2024-25, the lowest rate of growth of any Australian government and below inflation for the period. Expense growth is projected to average 2.6 per cent over the budget and forward estimates, which remains well below the 6.5 per cent average annual expense growth between 2011-12 and 2022-23.
Total general government revenue is projected to be $4.6 billion higher over the four years to 2028-29, which will support essential services such as the cost-of-living relief through a permanent toll cap.
The State’s infrastructure program is projected to be $28.2 billion in 2025-26, one of the largest years on record in New South Wales.
Economic growth in 2025-26 is expected to be slightly weaker than forecast at the Budget. The unemployment rate is now expected to peak in the June quarter 2026 at 4½ per cent, which is still a historically low level.
Economic Outlook
The economy is continuing to normalise following the disruptions of the COVID-19 pandemic. Domestic economic activity evolved broadly in line with expectations in the 2025–26 Budget, through to the June quarter 2025. Growth subsequently rose strongly in the first quarter of the 2025-26 financial year, as business investment rebounded from earlier weakness. This strong pick up in investment, supported by improved business confidence, was underpinned by renewable energy projects and data centres.
The labour market remains tight, despite the trend unemployment rate rising to 4.3 per cent in October. Alongside weak productivity growth, there has been a renewed pick-up in inflation. With quarterly national trimmed mean inflation currently slightly above the top of the Reserve Bank of Australia’s (RBA) target band, the RBA Monetary Policy Board has signalled a more cautious approach to interest rates. Financial markets currently expect the RBA to tighten interest rates modestly in 2026.
Forecast growth in real GSP in 2025-26 has been revised slightly lower to 1½ per cent (1¾ per cent at Budget), reflecting the higher outlook for interest rates. Weaker economic growth is expected to see the unemployment rate peak at a slightly higher rate of around 4½ per cent (4¼ per cent at Budget), which should see inflation gradually ease to the centre of the RBA’s target band.
The main near-term risk is that inflation remains elevated for longer.
Economic Performance and Outlook(a)
| 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 |
|---|---|---|---|---|---|
| Outcome | Forecast | Forecast | Forecast | Forecast | |
Real state final demand | 1.2 | 2 (2¼) | 2½ (2¼) | 2½ (2¼) | 2½ |
Real gross state product | 0.9 | 1½ (1¾) | 2½ (2¼) | 2¼ (2) | 2 |
Employment | 1.6 | ¾ (1) | 1¼ | 1¾ (1½) | 1½ (1¼) |
Unemployment rate(b) | 4.1 | 4½ (4¼) | 4¼ | 4 | 4 |
Sydney consumer price index | 2.4 | 3¼ (3) | 2¾ (2½) | 2½ | 2½ |
Wage price index | 3.2 | 3½ | 3 | 3 | 3 |
Nominal gross state product | 4.1 | 3½ (3¼) | 5¼ (5) | 4¾ (5) | 5 (5¼) |
Population(c)(d) | 1.3 | 1.1 | 1.0 (1.1) | 1.0 (1.1) | 1.0 (1.1) |
- Forecasts are rounded to the nearest quarter point and are annual average per cent change, unless otherwise indicated. 2025-26 Budget forecasts in parenthesis where different. Forecasts completed prior to publication of the 2024-25 Annual State Accounts by the Australian Bureau of Statistics (ABS).
June quarter, per cent.
- Per cent change through the year to 30 June and rounded to the nearest 0.1 percentage point. The assumptions for net overseas migration are consistent with assumptions in the 2025-26 Australian Government Budget.
- The 2024-25 population outcome is not yet published and remains a forecast.
Source: ABS and NSW Treasury
Fiscal Position and Outlook
The 2025-26 Half-Yearly Review reaffirms the Government’s commitment to restoring fiscal sustainability while providing essential services and infrastructure for the community.
The State’s budget is on track to return to surplus by 2027-28 as projected in the 2025-26 Budget. Gross debt is projected to stabilise around 20 per cent of gross state product (GSP).
The State’s operating position continues to improve. The deficit in 2025-26 is projected to narrow from $3.4 billion at the 2025-26 Budget to $3.1 billion.
The State’s infrastructure program is projected to be $28.2 billion in 2025-26, one of the largest on record in the history of New South Wales. However, over the four years to 2028-29, the State’s infrastructure program is projected to be $111.5 billion.
This reinforces the Government’s aim to reset the infrastructure program to more sustainable levels of around 2 per cent of GSP to better align with market capacity and avoid delivery delays and cost overruns while maintaining a steady pipeline of investment.
Gross debt is projected to be $177.2 billion at June 2026, which is $1.5 billion lower than projected at the 2025-26 Budget as stronger revenues and slower than expected capital spending reduces in year borrowing requirements.
Gross debt is also $11.0 billion lower than projected at the 2023 Pre-election Budget Update, saving the State approximately $500 million per annum in interest expenses.
Gross debt to GSP is projected to be 19.2 per cent by June 2029, down from the 19.6 per cent projected at the 2025-26 Budget due to lower projected borrowing requirements and stronger GSP forecasts.
Since the 2025-26 Budget, the State’s triple-A credit ratings have been maintained by Moody’s and Fitch. S&P Global has maintained the State’s double-A plus rating, with a negative outlook.
Expenses Outlook
Over the budget and forward estimates, expense growth is projected to average 2.6 per cent per annum. This is marginally higher than the 2.4 per cent projected in the 2025-26 Budget but remains well below the 6.5 per cent average annual growth between 2011-12 and 2022-23.
Employee expenses are $2.9 billion higher over the budget and forward estimates than at the 2025-26 Budget, driven by higher projected expenses for insurance and compensation schemes (excluding workers compensation reforms), and higher employee expenses associated with the future operation of the Northern Beaches Hospital under public ownership.
Over four years to 2028-29, expenses are projected to increase by $4.0 billion compared to the 2025-26 Budget. Key new measures include:
- $339.6 million over three years to 2027-28 for the extension of the Preschool Reform Agreement to the end of 2027, providing funding certainty while allowing for further work with the Australian Government and other jurisdictions on a long-term agreement. The expenses are fully offset by revenue from the Australian Government
- higher expenses associated with the future operation of the Northern Beaches Hospital under public ownership
- permanently continuing toll relief in the form of a $60 per week cap from 1 July 2026 for Sydney’s roads
- increased employee expenses relating to NSW Health industrial instruments, including an increase in night shift penalties for NSW Health nurses and midwives from 15 to 20 per cent, and salary increases resulting from award modernisation processes for a range of NSW Health staff.
