An audit has found the NSW government's 'poor' accounting has led to an extra $5 billion in rail payments. 

The Perrotet Government must factor more than $5 billion of rail payments to future budgets, due to what the NSW auditor-general describes as “unsophisticated” and “poor” accounting.

Auditor-general Margaret Crawford’s report into the state's 2020-2021 finances says the audit process was “significantly delayed” by disagreements about the state's accounting, and was “further frustrated” by information being withheld and not shared in a timely way.

Much of the disagreement relates to a $2.4 billion payment made to the Transport Asset Holding Entity (TAHE).

Management of the state's rail assets and infrastructure was moved to TAHE after it was set up by the NSW government in July 2020. 

The government claimed TAHE would help it achieve a budget surplus because its funding could be defined as an investment instead of expenditure.

However, the audit found TAHE’s rate of return would be insufficient to claim the $2.4 billion payment as an investment. 

“Between 9 July and 1 December 2021, NSW Treasury submitted three versions of estimated returns with respect to the [state government's] investment in TAHE,” the report says.

“All of these models were unsophisticated, containing errors, omissions, and/or poor logic. Most importantly, none were able to demonstrate that a realistic rate of return would be derived from the [state government's] investment in TAHE.”

The government said it would undertake several measures to alleviate its “deficiencies”, including increasing the fees paid by Sydney Trains and NSW Trains to TAHE by $5.2 billion between 2022 and 2031.

The auditor-general said the financial impact on the state budget could extend beyond the term of the current government.  

“Uncertainty exists because future governments may also need to commit the necessary funding in successive forward estimates to enable the operators to pay the access and licence fees,” the report said.

The NSW Treasurer Matt Kean welcomed the report.

“It comes on the back of many months of hard work and collaboration between NSW Treasury and the NSW Audit Office, working their way through the many complex accounting issues,” he said.

“I always welcome recommendations on how we can do things better and look forward to reviewing the report.”

Opposition Leader Chris Minns said the government’s financial manoeuvre would lead to higher train fares.

“At the end of the day, that $5 billion will be passed on to the consumers and passengers on public transport right throughout NSW … $5 billion can't be invented out of the clear blue sky,” he said. 

“You've got a situation where the New South Wales Premier tried to pull the wool over the eyes of the people of NSW, setting up an entity that they knew was trying to dud the books and obscure the true state of the NSW finances.

“Now we're in this ridiculous position where the NSW government has to tip in $5 billion into the entity so the Auditor-General would tick off on the finances.”