Sydney's thriving property market will help deliver a higher-than-expected surplus for NSW in the coming financial year.
The NSW government has forecast a surplus of $3.7 billion for the 2016/17 financial year in Tuesday's state budget, improving on the $3.2 billion surplus predicted during its mid-year budget review in December.
The government is also forecasting surpluses, albeit smaller ones, over the next three years.
"Above-trend economic growth is expected to continue over the next two years, with gross state product forecast to grow three per cent in 2016/17 and 2.75 per cent in 2017/18," NSW Treasurer Gladys Berejiklian said.
The state posted a surplus of $3.4 billion for the current financial year, thanks in part to the booming housing market.
Transfer duties, which make up more than 11 per cent of government revenues, exceeded expectations in 2015/16.
They will continue growing over the next four years, although at a more subdued pace of 2.4 per cent annually.
"While the current housing cycle is longer than previous cycles, historically low interest rates, strong population growth and continued supply limitations are expected to support activity," the government's budget papers said.
The state will also benefit from higher taxes - announced earlier this month - on foreign investors looking to buy residential property.
Foreign investors will pay an additional four per cent stamp duty surcharge on purchases, starting Tuesday, and an extra 0.75 per cent land tax surcharge on residential real estate from 2017.
Revenues will also be boosted by higher payroll taxes on the back of strong employment growth and changes associated with Commonwealth grants and distributions from government businesses, the budget papers showed.
However, the NSW government has flagged an expected reduction in its share from the national pool of GST revenue on account of strong economic growth in the state.
GST revenue in 2016/17 is expected to be $850.5 million lower compared to 2015/16, and reductions of a similar magnitude are also expected in the following two financial years.
Net debt is expected to jump to $7.5 billion or 1.3 per cent of gross state product by the end of 2016/17, reflecting the significant increase in infrastructure spending.
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