NSW Public Finance Decoded: How 128 Councils and the State Share, Shift and Stretch Every Dollar (FY 2023-24 view)

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Executive Summary

This report decodes the intricate financial relationship between the New South Wales (NSW) State Government and its 128 local councils. Based on an analysis of the latest available data for the 2023-24 financial year, it reveals a system under significant strain, characterized by a rebounding but still-indeficit State, councils struggling with operational shortfalls, and a complex web of inter-governmental transfers and cost-shifting.

For council CFOs, state policy advisors, and public sector leaders, the key takeaway is that while headline figures suggest stability, underlying structural weaknesses threaten the long-term financial sustainability of local government. Key insights include:

• State Revenue Rebounds, But Expenses Still Outpace Cash: NSW's total revenue rose 5.3% to $119 billion in 2023-24, driven by a $4.9 billion stamp-duty bounce and $1.7 billion in extra service sales. However, with expenses growing 7.5% to $130.3 billion, the state remains in deficit. Unless expense growth is contained, the grant pool available to councils will shrink.
• Local Government Breaking Even on Paper—Not in Reality: Aggregate council income (excluding capital grants) was $16.1 billion against $16.3 billion in spending in 2023-24, a $0.2 billion shortfall. This masks that 40% of councils ran operating deficits after adjusting for inflation.
• Rates Are King, but Grants Are the Growth Engine: Metropolitan councils rely on rates and annual charges for 50% of income, while rural councils draw 54% from grants and contributions. Councils facing rate-peg ceilings must embed grant-seeking capacity or diversify fees.
• State-to-Council Cash Is Lumpy and Falling: Direct NSW transfers to local government dropped from $1.19 billion in 2022-23 to $896 million in 2023-24 as disaster programs wound down.
• Councils Pay Out More Than They Realize: The Emergency Services Levy (ESL) and Waste Levy together extracted over $480 million from councils in 2023-24. The ESL contribution surged by 46% to $240.8 million.
• Cost-Shifting Tops $1.5 Billion, Squeezing Infrastructure: Under-funding of libraries, planning portal fees, and RFS asset depreciation pushed total cost-shifting up 10% since 2022.
• Sixteen Councils Are One Pay-Run from Insolvency: The Audit Office found 16 councils hold less than three months of unrestricted cash. Glen Innes Severn Council lost over $1.1 million from a failed ERP implementation.
• GST Relativity Cut Slices $6.2 Billion from State Forecasts: NSW's GST relativity is projected to fall, weakening expected grants by $6.2 billion over four years to 2027.
• The Cloud ERP Race Is Splitting the Sector: Over 73% of ANZ residents now live in a council powered by TechnologyOne's SaaS platform; Civica and MAGIQ anchor smaller rural councils.
• Credit-Rating Pressure Creeps Down the Pyramid: S&P's 'Negative' outlook on NSW's AA+ rating cites debt projected to hit 172% of operating revenue by 2027.

1. NSW Fiscal Snapshot FY 2023-24: State Revenue Up, Deficit Persists

The NSW State Government's financial position showed signs of recovery in 2023-24, but structural challenges remain. Revenue grew but did not cover rising expenses, resulting in a continued operating deficit and growing debt. The state has been in deficit since 2019-20, projected to continue until 2026-27.

Revenue Rebounds on Property Market Strength

Total state revenue increased by 5.3% from $113 billion in 2022-23 to $119 billion in 2023-24. Growth driven by a $4.9 billion surge in taxation revenue and a $1.7 billion increase in sales of goods and services. Commonwealth grants totalled $45.1 billion, including $26.7 billion in GST payments.

Table 1: NSW State Government Revenue Composition, FY 2022-23 vs FY 2023-24

Expense Growth Outpaces Revenue

Total state expenses for the Total State Sector grew by 7.5% to $130.3 billion in 2023-24. For the General Government Sector, expenses rose 3.8% to $120.9 billion. Drivers included a $4.5 billion rise in employee expenses and a $2.5 billion jump in interest expenses, producing a GGS net operating deficit of $10.7 billion.

Forward Estimates and Fiscal Risks

• GGS net debt-to-GSP ratio rose to 11.4% in 2024, projected to reach 14.2% by 2028.
• A 100 basis point increase in bond yields would increase interest expenses by $154 million in 2024-25, escalating to $655 million by 2027-28.
• A 1 percentage point increase in residential property prices adds $123 million to transfer duty revenue in 2024-25.
• GST relativity revisions could reduce revenue significantly, adding pressure on state and council grants.

2. Aggregate Council Finances: $16.3B Spent, 40% in Deficit

In 2023-24 total council expenditure of $16.3 billion outstripped operating revenue (before capital grants) of $16.1 billion, a $0.2 billion sector-wide shortfall. Around 40% of councils did not break even after inflation adjustments.

The Reality Behind the Numbers

• 2022-23 appeared healthier due to early federal payment of Financial Assistance Grants.
• Operating deficits affect about 40% of 128 councils. Inflation-adjusted revenue growth lags expenditure growth.
• 36% of councils lack formal long-term financial performance monitoring methods.

Table 2: NSW Council Sector Revenue & Expenditure Trend by Classification (FY 2023-24)

Cash Liquidity Is a Critical Weakness

As of June 2024, 16 councils had insufficient unrestricted cash and investments to cover three months of essential expenses. 35 councils met only one or none of the three key financial sustainability benchmarks.

3. Where Councils Get Their Money: A Widening Resilience Gap

Revenue composition shows a divergence between metropolitan councils (strong rate base) and rural councils (high grant dependence).

Revenue Composition by Council Type (FY 2023-24)

• Metropolitan: 50% rates & annual charges, 24% grants & contributions, 12% user charges.
• Regional: ~40% rates & annual charges, 36% grants & contributions, 17% user charges.
• Rural: 24% rates & annual charges, 54% grants & contributions.

Table 3: NSW Council Revenue Composition by Source and Class (FY 2023-24)

Grants Breakdown: Federal vs. State

• Commonwealth FAGs: Includes General Purpose Component and Local Roads Component. NSW councils to receive $708.8 million (GPC) in 2024-25.
• NSW State Grants: Mix of recurrent and capital grants for disaster recovery, roads and community infrastructure.
• Developer Contributions: Significant for metropolitan councils in growth areas.

4. Money Flowing In & Out: The Two-Way Street Between State and Councils

The relationship is complex: state grants flow to councils while councils remit levies and fees back to the state. For 2024-25 the NSW Budget lists $2.27 billion in current grants and $1.13 billion in capital grants to local government.

Table 4: Key NSW Government Grant Programs for Local Councils (2024-25 Budget & Forward Estimates)

Transfers Out: Council Payments to the State

Councils make substantial payments to the state via levies and fees. Major items include the Emergency Services Levy and the Waste Levy.

Table 5: Major Payments from NSW Councils to State Government (FY 2023-24 Estimates)

5. What Each Tier Must Pay For: A Map of Responsibilities and Unfunded Mandates

Expenditure responsibilities are defined by legislation, but cost-shifting blurs the lines. Councils are responsible for a wide range of local services and infrastructure while the state handles statewide functions.

Table 6: NSW State vs. Local Government Expenditure Responsibilities

The $1.5 Billion Problem: Unfunded Mandates and Cost Shifting

LGNSW quantified cost-shifting at $1.50 billion in 2023-24, a 10% increase since 2021-22. Examples include:

• Rate exemptions costing councils $294.6 million.
• Unfunded regulatory functions (development assessment) shortfall $258.8 million.
• ESL increase to $240.8 million.
• Library funding gap of $181.8 million relative to original commitments.

6. Financial Sustainability & Risk Dashboard

Financial health is precarious. Many councils fail sustainability benchmarks and face an expanding infrastructure backlog.

Table 7: NSW Council Financial Sustainability Indicators (2022-23 & 2023-24)

Failure Case: Glen Innes Severn Council's ERP Collapse

Glen Innes Severn Council's failed financial system implementation led to audit disclaimers and material costs: estimated $638,000 in additional costs, ~$500,000 remediation, full remediation not expected until July 2026.

Scenario Stress Test: Construction Cost Spike

A hypothetical 20% spike in construction costs would likely wipe out capital works budgets for 38 councils with the weakest sustainability ratings.

7. Comparative Lens: How NSW Councils Stack Up Against Other States

NSW councils face distinct pressures due to restrictive rate-pegging and significant cost-shifting compared with VIC, QLD and WA.

Table 8: Comparative Local Government Financial Metrics (FY 2023-24)

8. Ecosystem Players & Market Solutions

Key organisations shape rules, monitor performance and advocate for councils. The tech vendor landscape provides core ERP, asset and grants systems.

Table 9: Roles and Levers of Key Ecosystem Players

Table 10: Major Software Vendors in the NSW Local Government Sector

9. Forward Trends & Scenario Planning 2024-28

Key macro drivers include GST relativity, housing market cycles, inflation/construction costs and disaster frequency. Three scenarios (Soft Landing, Inflation Rebound, Disaster Double-Hit) outline possible fiscal trajectories and recommended playbooks for state and councils.

Table 11: Fiscal Scenarios and Strategic Playbook for NSW Governments

10. Action Checklist for CFOs & Policy Makers

Priorities for local and state leaders are listed below.

For Local Government CFOs and General Managers:

• Mandate full costing for new responsibilities and require guaranteed indexed funding.
• Model state levies as volatile; bake ESL into long-term plans and include an ESL factor in rate modelling.
• Accelerate cloud ERP & shared services; Joint Organisations should pursue shared SaaS agreements.
• Stress-test liquidity and prepare contingency plans for councils with <3 months cash cover.
• Diversify revenue streams and benchmark user charges and fees.

For State Government Policy Makers (NSW Treasury, OLG, DPHI):

• Reform ESL to a broad-based property levy and commit to reinvesting the Waste Levy into waste infrastructure.
• Fund unfunded mandates: libraries, development assessment, Crown land management.
• Establish a council ERP assurance program to prevent costly system failures.
• Pilot a pooled liquidity or borrowing facility for high-risk councils via TCorp.
• Centralize grant administration to streamline grant application and reduce admin burden.

Appendices

Appendix A: Full Council-by-Council Financial Dataset

Detailed financial data for each of the 128 NSW local councils is available in the OLG 'Time-Series Data' Excel file.

OLG Time-Series Data 2023-24.xlsx

Appendix B: Methodology & Data Caveats

This report synthesises ABS GFS and OLG 'YourCouncil' data. GFS aligns to IMF GFSM 2014; OLG data uses AASB accounting. UPF harmonises GFS and GAAP in NSW Budget papers.

Appendix C: Glossary of Key NSW Acts & Abbreviations

• ABS: Australian Bureau of Statistics
• CGC: Commonwealth Grants Commission
• DRFA: Disaster Recovery Funding Arrangements
• ESL: Emergency Services Levy
• FAGs: Financial Assistance Grants
• GFS: Government Finance Statistics
• GGS: General Government Sector
• IPART: Independent Pricing and Regulatory Tribunal (NSW)
• LGA: Local Government Area
• LGNSW: Local Government NSW
• Local Government Act 1993 (NSW)
• OLG: Office of Local Government (NSW)
• TSS: Total State Sector

References

1. State finances 2024 | Audit Office of New South Wales
2. Local government 2024 | Audit Office of New South Wales
3. Local government 2024 | NSW Parliament
4. 2024-25 Budget Statement
5. Budget Paper No. 1 - Budget Statement - Budget 2023-24
6. 2025 LGNSW Cost Shifting Report
7. Rate pegs for NSW councils for 2025-26
8. 2025-26 Budget Paper No. 1 - Federal Financial Relations
9. GST Relativities 2025–26
10. YourCouncil - Finances
11. New South Wales Outlook Revised To Negative
12. Report on the state finances 2023-24 - NSW Parliament
13. BP1 - Appendix B Fiscal Risks and Budget Sensitivities
14. Budget Paper No.1 - Budget Statement Budget 2024-25
15. YourCouncil - Finances
16. Special Variations & Minimum Rates 2024-25 - IPART
17. Local government 2024 - NSW Audit Office (PDF)
18. $500 per ratepayer: cost shifting blowout
19. OLG Time-Series Data 2023-24
20. Federal Budget 2024-25 – highlights
21. Facts and Figures – ALGA
22. LGNSW Policy Platform
23. Office of Local Government
24. 2025-26 Budget Statement - NSW Budget
25. Road asset management in local government - Audit Office
26. Australian construction price outlook - Altus Group
27. ABS Government Finance Statistics
28. SAP Enterprise Resource Planning (ERP) Software Contract
29. About the NSW economy
30. Local Government Code of Accounting 2022/23
31. Data - Your Council NSW