Every dollar precious in souring budget outlook

But sitting in his NSW parliamentary office, which features a signed photo of Chance the Rapper, the state treasurer shows little sign of unease for a man about to reveal a financial blueprint steeped in red ink for Australia's most populous state.

His inaugural budget, Labor's first in 13 years after returning from the political wilderness of opposition benches, predicted a return to surplus in the coming financial year.

The forecast for the soon-to-be delivered second budget has since soured, with Mr Mookhey firmly blaming a GST carve-up that stripped billions of dollars from his budget's bottom line and threatened the state's cherished triple-A credit rating.

"Definitely, a surplus is not going to happen in 2024/25," he told AAP, bluntly.

The lack of financial breathing room has been reflected in a series of dour announcements in the lead-up to Tuesday's budget.

Many of the big-ticket funding pledges have been for the kind of paint-and-plaster spending usually relegated to a footnote: more than $1 billion for a backlog of school maintenance work and $3.4 billion to upgrade health facilities, some of which will go towards cost blowouts for existing projects.

However, Mr Mookhey flinches at the suggestion these kinds of "back to basics" measures represent a lack of long-term vision from his government.

"You can't neglect the basics, because that results in declining service delivery, particularly in education and our hospitals," he said.

"At the same time, we are putting money into the projects that we need for the future."

As an example, Mr Mookhey points to $2 billion in funding for stage two of the Parramatta light-rail development, a project promised but never financed by the former coalition government.

"We've treated every public dollar as precious and we're determined to make sure that the public is getting full value from every dollar we're spending," he said.

A large share of the spending will also go towards better pay for hundreds of thousands of public-sector workers after Labor scrapped its predecessors' controversial wage cap.

The opposition has blamed profligate wage promises for fuelling unions' double-digit demands, which could add billions of dollars more to the cost of a 10.5 per cent, three-year rise already offered to more than 400,000 workers.

That deal, budgeted at about $3.6 billion, falls well short of calls from powerful unions for key essential workers, including police, nurses and firefighters.

But Mr Mookhey is unapologetic for delivering big pay rises, such as a one-off increase in teacher salaries of up to 12 per cent, even after criticism they set a precedent other worker groups will follow.

"We have demonstrated it is possible that you can treat essential services with the respect they deserve, so that they can get on with the job of delivering the services the community depends on, at the same time you are balancing budgets and managing state finances," he said.

Nowhere will the government's spending be more closely scrutinised than in the area of housing, the dire shortage and unaffordability of which has been blamed for driving essential workers and young people from the state and its exorbitantly priced capital.

When asked if the budget would treat the issue of housing as an emergency, Mr Mookhey offered a short but categorical answer: "yes".

But advocates calling for an immediate and direct investment in public housing, where the number of homes have been steadily falling for more than a decade, are likely to be disappointed.

"We're not promising that we'll be able to solve all these problems in one budget, but there's no doubt that we are well and truly listening to what we're hearing," Mr Mookhey said.

The latest budget's housing focus - much like it was for 2023/24 - will be on providing infrastructure to support the delivery of more homes, such as through a $200 million incentive scheme for councils that meet their share of a 75,000-house-per-year state target.

"We are making sure that those communities that are taking on more housing are being supported," Mr Mookhey said.

While Chicago superstar Chance provided the soundtrack to the treasurer's first budget preparation, the former Transport Workers Union official revealed he had been playing Taylor Swift's Eras Tour in the background while writing Tuesday's speech.

He might be yet to replicate the budgetary equivalent of the pop princess's dozen-plus albums, but Mr Mookhey is quick to point out that his 2024 edition should not be taken as a one-hit wonder, but together with what will be a four-part series.

"This budget will be consistent with the strategy that we outlined in our first, which is focussing very hard on essential services, backing families during a once-in-a-generation cost-of-living crisis, wrangling the state's debt back under control and tackling the housing crisis," he said.

Australian Associated Press