THE new state Treasurer, Eric Roozendaal, might be accustomed to the grime of Labor Party machine politics, but he will face a particularly dirty job grappling with the state economy.
Michael Costa's outburst last Friday highlighted the size of the task facing his replacement, who immediately confronts a sagging economy, falling tax revenues, and the 30 per cent likelihood of a cut in the state's AAA credit rating.
The main insight into the economy provided by the former treasurer's tell-all exit was that revenue from stamp duty - charged when people buy and sell property - was down $90 million a month in July and August.
For the State Government, highly reliant on this volatile tax, jangling nerves among property investors is a major problem.
During the recession in the early 1990s, for example, the take from stamp duty collapsed by 50 per cent in one year.
In relation to other states, the NSW economy is highly reliant on sectors hard-hit by crisis in credit markets and the blow-out in borrowing costs.
Sydney, for example, houses half the country's finance and insurance businesses, according to Access Economics. Combined, finance and property make up about a quarter of the NSW economy.
But it is not all doom and gloom. While Mr Costa revealed that stamp duty revenue had fallen, he omitted to mention that payroll tax figures were relatively strong in July and August.
The Herald understands that payroll tax has met Treasury's expectations in the past couple of months, meaning that the local job market remains relatively healthy.
The director of Access Economics, Chris Richardson, said the performance of state economies typically bore little relation to the policies of state governments, whose main job was the provision of services. "Global commodity boom, global credit crisis, the drought: it is hard to attribute any of those to state politicians," he said.
But Mr Richardson pointed out that NSW was not doing as well as other states that also have failed to benefit from a mining boom. "Many of the things that have afflicted NSW have also afflicted Victoria and it is interesting just how much better Victoria has done."
Mr Costa's revelations about the state's precarious fiscal situation came after Standard and Poor's put the state's AAA rating on "negative" credit watch, meaning there is a one-third chance of a downgrade.
This triggered Treasury's update to Michael Costa, who spilled the beans on Friday about the difficulty of maintaining the credit rating while meeting the government's spending plans.
The Treasury message, including the detail that the health budget has blown out by $300 million, has since been passed on to the Premier, Nathan Rees, and Mr Roozendaal, who spent much of yesterday consulting officials. The Government has said that losing a notch on its AAA credit rating would cost it up to $500 million between now and 2012 in extra interest rate payments.
"In normal circumstances I would argue that that would be a fairly extreme upper limit," the head of research at Deutsche Bank, Tony Plank, said of the $500 million valuation.
But he said that losing a credit rating was a bigger problem than it would usually be because of the dire state of credit markets.
The Government faces a difficult balancing act in preserving the credit rating, while also providing the infrastructure needs for economic growth.
Access Economics, for example, said in its recent appraisal of the state economy that it was being held back by inadequate transport facilities.
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