New South Wales has one of the most prosperous and productive economies in Australia, with a diverse base of economic activity and strong labour market. However, years of austerity have hollowed out its public sector, creating one of the proportionally smallest state public sectors in the country in terms of both economic activity and employment.

Despite the instrumental role the public sector played in navigating the state through the pandemic, weak wage growth and rising inflation have compounded the impacts of austerity, leading to significant reductions in public sector real wages. While the current government’s scrapping of the wage cap and implementation of public sector wage rises has undone some of this damage, most notably the October 2023 wage rises for public school teachers, more repair is needed.

The NSW government has a strong fiscal position with which to manage these challenges. NSW maintains nearly the highest credit rating in the country and relies on revenue bases that are both diverse and stable. Additionally, there is considerable evidence that, if needed, several options are available to increase state government revenue. As the state economy weakens in response to high interest rates and declining real incomes, the state government has the responsibility to contribute to support the economy and broader society, through expansion of public services, repair of public sector wages, and support for the most vulnerable.