The NSW auditor-general has reportedly refused to sign off on the state's finances, prompting fears public assets could be sold to cover up a $10 billion government "accounting sham".
Margaret Crawford has told Treasury she will not approve the budget, Nine Newspapers report, unless a solution is found to what she described as "significant accounting issues" with the government's Transport Asset Holding Entity.
The state-owned corporation was set up in 2015 to own NSW's transport assets but accountants and public servants have since warned it is being used to inflate the NSW budget.
NSW Treasury had miscalculated the benefit of TAHE to the state budget to the tune of $10 billion over the next 10 years, a parliamentary inquiry has heard.
Former transport department secretary Rod Staples has also warned the setup blurs the lines of responsibility for maintenance of the assets and public safety.
The government is scrambling to find a solution, two days before it is due to hand down its half-yearly budget update.
Opposition leader Chris Minns fears Sydney Trains, NSW trains or the entire Transport department could be sold to plug the massive hole in the budget.
"A fire sale of government assets could be on the agenda in order to ... effectively cover up a huge blunder by the NSW premier," he told reporters on Tuesday.
Shadow treasurer Daniel Mookhey said it is "almost unprecedented" that the auditor-general would delay approving the state's accounts for two months.
"This is a disaster," he said.
"To put this in perspective, the size of the TAHE budget trick exceeds the cost of operating the TAFE system in NSW.
"Now is the worst time for NSW to have to suffer through a self imposed budget implosion, which is what the Transport Asset Holding Entity is turning into."
Taxpayers are going to have to pay more through the higher taxes or through higher rail fares to fix the problem, he said.
Treasurer Matt Kean has been contacted for comment.
