Wars and energy shocks on the other side of the world don’t stay there. The 2026-27 NSW Budget shows how a fresh spike in oil prices and three rate rises are feeding straight into the state’s books, and into taxpayer costs.
Treasurer Daniel Mookhey handed down his fourth NSW Budget on Tuesday. The numbers show that even conflicts on the other side of the world can hit the state purse all the way over on Macquarie Street.
For example, the escalation of conflict in the Middle East in late February drove fuel prices sharply higher locally. Mookhey calls it the greatest energy shock in half a century. The NSW Treasury says that this shock alone will lower the state’s economic growth by 0.2 percentage points in 2026-27.
And when it rains it pours: the fuel shock has coincided with rising interest rates. The Reserve Bank lifted the cash rate three times this year, to 4.35 per cent, and because mortgages in NSW are bigger than elsewhere, Treasury says those higher borrowing costs bite harder in the state.
Why problems overseas cause problems for NSW
Higher fuel costs don’t stay at the bowser. They flow through to the price of transport, groceries and running a business, and they fall hardest on the families and tradespeople who have no choice but to drive.
Treasury’s baseline assumes oil prices stay elevated until at least September. Even after the conflict ends, it expects the damage already done to energy infrastructure to keep global supply tight through 2026 and possibly beyond, dampening demand and lifting costs the whole time.
The state is now tipped to run a $2.3 billion deficit in 2026-27, before returning to a $1.1 billion surplus in 2027-28 and staying in the black for the two years after. Treasury says it can still get there despite the fuel shock because it has held spending growth down, to 1.8 per cent in 2024-25 and an average of 2.7 per cent across the following years.
Gross debt is set to reach $178.5 billion by June 2026. Treasury says that’s $9.7 billion lower than the $188.2 billion it had forecast at the 2023 Pre-election Budget Update, saving around $400 million a year in interest. Infrastructure spending still tops $30 billion in 2026-27, about $82.7 million a day.
The government’s answer is a 12-month, $561.4 million Transport Affordability Package the budget says is designed for the months ahead: $100 off car registration, the weekly toll cap cut to $50, and Opal fares frozen at 2025 prices.
Those forecasts rest on an assumption that oil stays high until at least September. The surplus the government is banking on does not arrive until 2027-28.
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