NSW Treasurer Daniel Mookhey's third budget on Tuesday will include a forecast that gross debt will reach $178.8 billion by the end of 2025/26.
That's being cast as a win by Labor after the coalition left office with a projection that debt would hit $188.2 billion by June 2026.
The $9.4 billion difference means $400 million less in interest payments and more capacity to "secure the future of our essential services", the government said on Tuesday.
With inflation posing fewer problems, the state can get on with tackling ongoing issues, Mr Mookhey said.
"There's less interest in the bandaid solutions and there's more interest in the fundamental fixes to a lot of the challenges that the state's facing," the treasurer told AAP in the lead-up to the budget.
"If we think we can spend a dollar better, we will."
While his predecessors spent big on mega transport projects such as the Sydney Metro rail system, Mr Mookhey has shifted the focus of the state's infrastructure pipeline towards schools.
About $9 billion will be spent across four years on public school infrastructure, largely focused on growing suburban communities.
Another $700 million will be allocated to the new Bankstown Hospital while $270 million will upgrade ageing police tech, courts and public spaces.
While government expenditure could top $120 billion, income will be higher and deliver the first cash surplus since 2021.
Control of gross debt weighing on the state's $900 billion economy also ticks off a crucial election pledge.
Mr Mookhey said Labor remained focused on housing, nominating higher mortgages and rents as key reasons the state was increasingly unaffordable for millions of people.
While a housing panel of three state bureaucrats has helped bypass planning approval gridlock, NSW remains a laggard when it comes to home building.
Housing approvals fell to 44,900 in the year to April, well short of the 75,400 per year needed for Australia to achieve a target of 1.2 million new homes by 2029.
Property Council NSW executive director Katie Stevenson welcomed what she described as clear signals housing delivery and precinct development were at the heart of the government's agenda.
But shadow treasurer Damien Tudehope said budgets were about priorities and nothing announced so far had immediately improved people's lives.
The 2025/26 budget will be handed down later on Tuesday.
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