When federal Infrastructure Minister Catherine King stunned the NSW Labor government last week with the revelation that the Commonwealth was walking away from a critical road project in western Sydney, she unwittingly launched what will become a sustained funding war.

Road and rail are only the beginning. Health, the National Disability Insurance Scheme, education and the long-running stoush over the GST carve-up are coming. So too is migration. This is no confected fight. NSW Labor never shies away from a brawl, even against its own, and funding is a battle with the Commonwealth that the state cannot afford to lose.

A fight is coming: NSW Premier Chris Minns and Prime Minister Anthony Albanese. Credit: Alex Ellinghausen

The state premiers were already in position before King announced the list of 50 projects across the country for which federal funding would be axed as part of an infrastructure review. Queensland and Western Australia, the next states to go to the polls, were spoiling for a fight.

NSW was a little less worked up. But that was before King dropped the bombshell. One-third of the projects on the chopping block were in NSW. Most notably, the M7-M12 interchange, which is already under construction, was on her list. It blindsided NSW because it isn’t a pipedream (unlike faster rail, which was also axed but has been reborn more times than anyone can remember).

The interchange, which will be a crucial link to Sydney’s second airport, will have to be delivered, regardless, given the contractual obligations to Transurban. And unless King has a change of heart, NSW will be lumped with the bill. Not only for the M7-M12 link, but any of the other 16 projects that the Commonwealth is abandoning but which NSW deems indispensable. In all, that withdrawn funding will cost the state about $1.4 billion, according to early NSW Treasury estimates.

King complicated the issue by acknowledging that the interchange was an important project. At the same time, she claimed it was riddled with unexpected cost pressures. The usually mild-mannered NSW Treasurer, Daniel Mookhey, came out swinging. He was disappointed with a “capital D”.

“We’ve been in conversations with the federal government as part of their 90-day infrastructure review for more than 200 days,” he thundered. “It’s not clear whether the Commonwealth has been listening.” If it had been, it ignored NSW.

NSW has every right to be seriously concerned about the direction the Commonwealth is heading in terms of state/federal funding arrangements. The National Housing Accord, agreed to in August, means NSW will need to build 75,000 homes each year for five years – twice as many as it is forecast to deliver – to reach its share of the federal government’s ambitious new targets.