Budget squeeze: Minns government to halve health infrastructure spending rate

The Minns government will halve spending on health infrastructure as a percentage of the state’s economic output until the end of the decade, with education capital expenditure also taking a hit as Treasurer Daniel Mookhey grapples with rising debt servicing costs.

The fall in spending is part of the Minns government’s stated strategy to pare back the state’s $30 billion infrastructure program in 2026-27, shifting focus away from significant capital costs towards efficiency and maintenance of completed works.

But the decision to consolidate spending in the perennially under pressure health and education portfolios raises questions about the state government’s capacity to handle demand for critical infrastructure in an era of elevated inflation and steady population growth.

Analysis of this year’s state budget by e61 Institute, a non-partisan economic research centre, reveals health and education infrastructure spending will decline as a proportion of the state’s annual economic output (called gross state product or GSP) over successive years, with the former falling to the lowest level since before 2018.

Aaron Wong, a senior research economist at e61, said his analysis of the state’s infrastructure spending showed a definite decline in the health portfolio until 2030, as new hospital projects reach completion. The June budget included a $400 million asset renewal program, but no new hospital projects.

His analysis also revealed education infrastructure spending will decline as a percentage of GSP until 2028-29 before a modest uptick the following year. But Wong said forecasts for education infrastructure spending were roughly in-line with previous years as a share of the government’s overall capital program, which showed “it has not declined as a priority for the government”.

The fall aligned with Mookhey’s broader strategy to bring total infrastructure spending down to 2 per cent of GSP, down from around 3 per cent late last decade.

In March, the Audit Office found capital expenditure in NSW had remained “broadly stable” at around $29 billion-$31 billion per year from mid-2020 to 2024-25. That figure was forecast to fall to $27.5 billion by the end of the decade.

The budget papers show infrastructure spending in the health portfolio will fall from $3.5 billion this year to $2 billion in 2029-30. Similarly, spending on education and skills would decline from $3.3 billion to $3 billion over the same period.

Wong suggested there were two reasons for pulling back.

First, several years of high infrastructure spending had pushed up the cost of labour for construction-related employment in the private sector, inadvertently making building housing more expensive and undermining efforts to increase supply. Second, with gross debt in NSW expected to breach $200 billion by June 2028, or one-fifth of the state’s GSP, Mookhey was trying to reduce the state’s interest expenses.

The June budget warned NSW is already “facing the highest interest expenses in the state’s history”. But interest payments are forecast to grow at an average rate of 9.5 per cent per annum over the next four years, making it the state’s fastest growing expense.

The state government paid $7.7 billion in interest last year, but that will hit $11 billion by mid-2030.

The NSW government will spend a total of $116 billion on infrastructure over the next four years (including investments by state-owned enterprises such as Sydney Water). About 52 per cent of that total is allocated to transport projects.

Infrastructure spending in NSW ramped up under the previous Coalition government, funded in part by its “asset recycling” strategy where public assets were privatised. The proceeds were used to help fund major new transport projects, including the Metro network and the WestConnex toll road.

Annual spending on infrastructure (not including state-owned enterprises like Sydney Water) doubled from around $10 billion in 2014-15 to $20 billion in 2019-20. With global interest rates plunging to ultra-low levels during the pandemic, the Coalition government borrowed cheaply.

Over time, an increasing share of the ambitious infrastructure program was funded by borrowing; state debt began to grow. But central banks have ratcheted up interest rates to combat elevated inflation since 2022 and the government has been forced to refinance a large amount of debt at much higher interest rates.

By the end of the Coalition’s time in power, 83 per cent of infrastructure investment was funded by debt. The budget papers said the Minns government was looking to reduce that figure to 53 per cent by 2030, and is “focused on managing expenses, increasing cash operating surpluses to reduce the reliance on borrowings and maintain a large infrastructure program that can be sustainably delivered without privatisation”.

That shift was also reflected the State Infrastructure Plan in 2024-25, which said: “A focus on large-scale infrastructure projects often overshadows the need for routine asset maintenance”.

Yet, with the NSW population forecast to grow from 8.7 million to 9.31 million by 2031, paring back spending will put further demands on overstretched social infrastructure, especially in high-growth areas.

In 2017, the Audit Office found there had been a chronic underfunding of school infrastructure for a decade. Four years later, School Infrastructure NSW identified the need to accommodate 180,000 enrolments by 2039, with a significant portion of the growth anticipated in Sydney.

However, a report by Independent Schools of NSW found student enrolments in the government sector had declined by 0.9 per cent in 2025. Enrolments in public schools fell from nearly 70 per cent of students in 2000 to just 61.4 per cent last year, adding 12,000 additional students, or just 7 per cent of the total, across this period.

A NSW Health report in 2022 warned activity across the state’s health system would nearly double in the decade to 2031 if recent trends in disease and demand continue.

Wong’s insights mirrored comments made by Dr Fred Betros, the president of the Australian Medical Association (NSW). In a statement after the state’s June budget, Betros slammed what he claimed was a real-terms cut to health funding.

“NSW cannot keep waiting until patients are sick enough to need an emergency department before the system takes them seriously,” he said.

“Most of the infrastructure projects in today’s budget were announced by the previous government. This is not good enough. Doctors and patients have been crying out for support, and today’s budget fails them.”

In an interview with this masthead this month, Betros said governments were only planning infrastructure spending on three to six-year horizons, rather than thinking four decades ahead.

“If governments have been guilty of anything, it’s been probably being aware of what the demand on healthcare will be over the coming decades and not choosing to address it,” he said.

A spokesman for Mookhey said the most recent budget delivered record infrastructure in both health and education, saying the commitments were “fiscally responsible and sustainable.

“Unlike our predecessors, when this government announces projects, we ensure they are both funded and then built. This includes the new Rouse Hill and Bankstown hospitals, which the Coalition promised but never started,” he said.

“This budget provides real money, not empty promises. Between 2019-20 and 2022-23, the Liberals underspent their education infrastructure budget by $2.37 billion. They did not build the schools they promised. Making an announcement is the easy part. This government follows through because that’s what the community expects.”

The emergency response to the COVID-19 crisis in 2020 damaged the state’s financial position and pushed up debt. The NSW budget has now been in deficit for seven consecutive years and an eighth shortfall is forecast in 2026-27. That is by far the longest period the state has been in the red during the modern era.

Over the past decade, NSW’s gross debt has surged from $33 billion, or 6 per cent of NSW’s annual economic output, to $179 billion, almost 20 per cent of annual output, although gross debt in June this year was almost $10 billion lower than projected at the 2023 pre-election budget report.

Mookhey has vowed to maintain net debt around 20 per cent of the state’s annual economic output in the future.

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