Labor leadership hopeful Michael Daley calls it the smoking gun that shows the NSW government's "deception and fraud and dishonesty" over the state budget.
Premier Gladys Berejiklian says it's nothing new, and Transport Minister Andrew Constance says it's all above board.
A leaked report by accounting firm KPMG, prepared for cabinet, is at the centre of a dispute over whether the NSW government has been artificially inflating the budget surplus.
The controversy concerns a for-profit corporation, the Transport Asset Holding Entity, which the government set up in 2014 to hold the state's rail network assets - and swallow the network's costs.
According to a Sydney Morning Herald report published on Wednesday, the NSW Treasury pressured KPMG to alter a report which concluded that in the long run, the use of TAHE would cost the government billions of dollars more than it saved.
Because the expenses of the rail network have been shifted onto TAHE, they're not in the state budget. The newspaper alleges this helped mask the government slipping into deficit in 2018.
"We now have a massive black hole in the state budget, going back years and going forward years," Mr Daley said on Wednesday.
"It's a black hole that goes right to the top. The premier knows about it, the treasurer knows about it, and (Mr Constance) knows about it."
Mr Daley said this month's budget would be a "lie".
The government is using "financial wizardry" to claim the revenue from the rail network as part of its budget, but exiling any costs and depreciation to an empty shell entity with no board or CEO, he said.
But Mr Constance said the use of TAHE was no secret and the government had brought in legislation to use it as a holding entity.
"The initial thinking around this was to bring our accounting requirements in line with other states like Victoria," he said.
The Australian Bureau of Statistics signs off on the government's accounting standards and its treatment of TAHE as a state-owned corporation, he said.
The premier brushed off questions about the issue on Wednesday.
"This issue's been going on for six or seven years," she said.
Mr Constance also hit back at claims the use of the state-owned corporation would compromise safety.
Maintenance budgets are set centrally and administered by Transport for NSW, he said. As a state-owned corporation, TAHE is still owned by government and run by government.
Mr Daley, who obtained the KPMG report six weeks ago, is calling for an upper house inquiry into the matter.
He pledged to write to the ABS, the NSW Auditor-General and the Independent Commission Against Corruption.
Mr Daley's leadership rival, Chris Minns, criticised the government's use of TAHE as "creative accounting".
"The budget is not an accurate reflection of the state's finances," he said.
Australian Associated Press
