Federal infrastructure cuts, interest rates and inflation have been blamed for blowing NSW's budget out by $1.7 billion in just a few months.
Treasurer Daniel Mookhey delivered the half-yearly budget review on Thursday, saying he would continue to push his federal Labor counterparts to return funding promised for 17 major projects.
Last month the federal government revealed it would pull $7.4 billion from state and territory infrastructure works, but NSW ministers said they needed more money to cope with an influx of people due to Commonwealth migration policies.
Mr Mookhey said the infrastructure decision alone had cost the NSW budget $1.6 billion across the next five years.
"There's going to be many communities in NSW that won't be getting the infrastructure that was promised to them as a result of the federal government's decisions to cut funding," he said.
Mr Mookhey said negotiations were still under way on returning the federal financial support.
"I don't care if it's Labor or Liberal at a Commonwealth level - we said we will fight for NSW, we're fighting for NSW," he said.
Federal Treasurer Jim Chalmers said states would still get funding promised to them, but the timeline had been shifted.
"Funding for infrastructure over the 10-year pipeline has gone up for every single state and territory ... and where projects in a state aren't any longer receiving Australian government funding, that money is staying allocated to that state," he said.
Mr Chalmers said he recognised the pressure state and territory budgets were under, but asked their governments to note the pressure federal finances were under as well.
"I understand that the states would like more money from the Commonwealth," he said.
"That's a story as old as federation itself."
The Chris Minns-led state Labor government delivered its first budget in September, forecasting modest surpluses.
Treasury said the state was still on track to deliver a small surplus in 2024-25, followed by further surpluses in 2025-26 and 2026-27.
Mr Mookhey said the budget outlook had also worsened due to interest costs, which had increased by $500 million in 2023-24 with rising rates for borrowing.
Adding to the increasingly bleak outlook were the state’s insurance liabilities, which have added $900 million to costs across the four years to 2026-27.
The state’s GST receipts are forecast to be $1.9 billion less across the next four years due to decreased household spending as a result of higher interest rates and inflation.
"Put simply, the state's been walloped by the federal government, we've been walloped by higher interest rates and we've been walloped by higher insurance costs," Mr Mookhey said.
"The half-year review is a salient reminder about how difficult it will be to stabilise the state's finances and return the budget to surplus."
Opposition treasury spokesman Damien Tudehope branded the review the "nightmare before Christmas".
"Just three months after delivering the budget, the treasurer has lost control," he said.
Mr Tudehope urged Mr Mookhey to take a harder line in re-establishing infrastructure funding from the Commonwealth.
"Stand up to Canberra ... and demand that the Commonwealth honours its commitment to NSW infrastructure projects," he said.
Finance Minister Courtney Houssos said the government remained prudent and fiscally disciplined.
"At a time when every family and household is keeping a close eye on how their money is being spent we've established new processes to have closer oversight over government spending between budget cycles," she said.
