New South Wales and Victoria feeling the pressure from housing correction: Moody's

The Australian states' mid-year reviews (MYRs) revealed that revenue pressures from the housing market correction will partly offset gains from the GST funding reform, according to Moody's Investors Service.

Moody's Investors Service noted that at the same time, they expect higher-than-budgeted capital spending to become a major challenge for states as most embark on record capital spending programs, causing debt to rise more rapidly than revenue.

They added that for some states, debt will start rising from a lower level than in earlier budget projections, overall debt burdens will remain elevated over the next four years, increasing vulnerability to risks such as unbudgeted health and education reform costs.

Housing correction will partly erode revenue gains from GST reform:

Additional Commonwealth GST top-up payments will be offset by a weaker housing market according to Moody's

However, a weaker housing market will offset these gains.

John Manning, Vice President, Moody’s Investors Service said, "following strong growth in transfer duty revenue in recent years, particularly driven by very strong house prices along the Australian east coast, the MYRs forecast a larger drop in property-related revenue than previously budgeted."

"Despite already projecting lower property-related revenue in their FY2019 budgets, the larger states of NSW and Victoria now forecast further declines in transfer duty and land tax revenue as a result of weakening residential property market prices and falling sales volumes."

He noted however, "revenue projections for both states increased overall."

"Both NSW and Victoria expect to receive additional Commonwealth grant revenue to offset lower transfer duty revenue."

"Higher payroll tax revenue, mineral royalties and an upward revision to GST also increased NSW’s revenue projections, while Victoria’s projections improved due to higher payroll taxes from stronger full-time employment and wage growth," he concluded.