NSW fares worst as state budgets blow-out

The NSW government and local councils suffered a $1.5 billion turnaround in their budget balances in the first quarter, as state governments across Australia cut spending in line with stunted growth in taxes and other income.

September quarter figures released by the Bureau of Statistics show state and local governments went backwards in the September quarter in terms of their fiscal bottom line, however NSW suffered the biggest plunge.

In NSW, the total revenues of the state government and local councils slid almost 2 per cent from the same quarter a year earlier, yet spending increased by 7 per cent - the highest growth of any government in Australia outside the ACT.

The bureau figures show the economic slowdown is hurting state and local governments. Spending growth in the other states averaged 2.2 per cent - Queensland's spending was down 1 per cent - but even that was higher than their growth in revenues. Every state's deficit grew.

Between them, Australia's state and local governments ran up $2.6 billion in operating deficits in the September quarter, improving to end just $334 million in the red for the December quarter. Individual state figures for the second quarter are not yet available.

The bureau estimates consumption spending by governments fell by another 0.2 per cent in the December quarter, in real terms after seasonal adjustment, on top of a 1 per cent fall in the first quarter.

Investment rebounded 2.2 per cent, but only after plunging by 16 per cent in the previous quarter. This implies government activity, which accounts for 20 per cent of the economy, was flat in the December quarter after going backwards in September.

This was offset by a stunning 85 per cent jump in investment by government corporations, although much of that was in purchases of private sector assets rather than new investment.

NSW Treasurer Mike Baird announced in December the state expects to end up with a $775 million deficit for the 2012-13 financial year, followed by a $423 million deficit in 2013-14.

The other states experienced much smaller declines, although both territories also had their budget position deteriorate rapidly. Only the Commonwealth, Western Australia and the territories recorded significant growth in tax revenues compared with a year earlier.