NSW rail body at risk: Auditor-General

A troubled entity set up to manage the state's rail assets has been labelled "at risk" in a blistering report from the NSW Auditor-General, who says it was created to make the NSW budget look good.

The seven year design and implementation of the state's Transport Asset Holding Entity (TAHE) was not transparent, cohesive or effective, Auditor-General Margaret Crawford said in a report released late on Tuesday.

"It delivered an outcome that is unnecessarily complex, in order to support an accounting treatment to meet the NSW government's short-term budget objectives, while creating an obligation for future governments," she said.

TAHE is a state-owned body holding the government's rail assets, including property, trains and infrastructure.

Benefits from establishing the body were claimed in the 2015-2016 budget, before enabling laws were passed by parliament in 2017 - committing agencies to put together solutions justifying the budget impacts.

The report found the 2015-2016 NSW budget was improved to the tune of $1.8 billion a year because of tweaks made by Treasury.

The state's finances were inflated by a further $4.8 billion in the following three budgets, while key parts of the entity were still being developed, the report found.

The financial structure of the entity relies on a circular network of government cash, where 80 per cent of its revenue comes from licensing its assets to state-owned Sydney Trains and NSW Trains.

In turn, Sydney Trains and NSW Trains are given grants by the government with taxpayer funds to pay these licensing fees.

Future governments will also need to provide funding to state-owned rail operators to preserve the government's investment in TAHE.

TAHE is not expected to achieve a return, including on its losses until 2046, and there is a risk the entity will never generate revenue.

Last year a parliamentary upper house inquiry recommended TAHE be wound up due to future predicted negative impacts on the state's finances.

The committee's former chair David Shoebridge, now a federal Greens Senator, called TAHE a "financial and organisational mistake".

Premier Dominic Perrottet defended TAHE on Tuesday, saying similar processes had been taken up in Queensland and Victoria.

"Through that structure you have better management of the transport assets."

Shadow Treasurer Daniel Mookhey says the entity has created a looming $10 billion vacuum in the state's hip pocket.

"As a result, we're having to cut funding to schools and hospitals until we deal with this massive black hole," Mr Mookhey told reporters on Wednesday.

If Labor wins the election it is promising to disband TAHE as soon as the state's rail assets can be safely moved into new management.

The NSW Greens reaffirmed their commitment to unwind the entity, calling it a disastrous boondoggle on the state's purse.

"This report confirms what the Greens have been saying for years - the TAHE structure was concocted as a flimsy accounting trick to try and deliver a short-term sugar hit to the budget," Greens MP Abigail Boyd said on Tuesday.