THE "rebuilding" of NSW will initially cost money, with the State Government planning a $718 million deficit this year before a $292-million surplus in 2012-13 through hard spending cuts.

NSW Treasurer Mike Baird said the Government had to make the hard decisions to restore confidence and ensure the Government had the budget to steer its own destiny.

"To look around the world you see governments that can't do what they are elected to do," Mr Baird said.

"We need to rebuild the state budget and return the budget to surplus."

Mr Baird said for the budget to return to surplus it needed a $5.2 billion turnaround over the four years to 2014-15. The Government will increase mining royalties and flagged 5000 voluntary redundancies in the public service as part of a drive to save $8 billion in costs over four years.

He said it was the only responsible way to manage the budget and not threaten the state's debt rating.

Ratings agency Standard and Poor's said the NSW Government's triple-A rating has not been affected by the budget deficit but it could come under pressure if planned gains fall short.

S&P said in a statement the government's plan to balance revenue and expenditure would be "challenging".

"As the detailed assumptions and implementation plan behind these forecasts becomes available in the coming weeks we will update our base case scenario to reflect what we consider to be the most realistic outcome," the credit ratings agency said.

"Should the expected debt and net financial liability levels exceed the above-mentioned thresholds for a AAA rating over the medium term, the outlook could be changed to negative or ratings may be lowered.";

The 2011-12 budget is the first for the O'Farrell Government after 16 consecutive years of Labor governments.

AT A GLANCE

• Revenue $59,026 million
• Expenses $59,744 million
• Budget Result $-718 million
• Net Lending $-3,986 million
• Net Financial Liabilities $51,949