Australia’s most populous state, New South Wales, has launched an AUD3bn (€1.9bn) sovereign wealth fund.

In his 2018-19 budget, the NSW state treasurer, Dominic Perrottet, announced that Generations Fund’s seed asset would be a multi-billion-dollar stake in a new inner city toll road project, WestConnex.

The AUD16.8bn project, which is currently under construction, will link Sydney’s Western suburbs with the rest of the city.

The government has already shortlisted potential buyers of a 51% stake in WestConnex.

These are thought to include IFM Investors and the Australian infrastructure group, Transurban.

Perrottet, said if the government was successful in selling 51% of WestConnex, it would hold the remaining 49% in the Generations Fund.

This, he said, would insure future toll road revenue was used to retire debt.

Although the budget papers said the sale of WestConnex was expected to be completed by “mid-year”, the NSW Treasurer said he expected the transaction to be finalised “later” in the year.

The NSW government has increased its infrastructure investment to a record AUD87.2bn over four years.

The bulk of that allocation will go to transportation projects, including WestConnex and the Sydney Metro railway.

Delivering his 2018-19 budget, Perrottet said the government would make an initial investment of AUD$3bn to establish the fund.

“The returns will grow over time, strengthening our state’s ability to meet future commitments,” he said.

The government plans to top up on the initial allocation to set up the state’s version of the Future Fund, Australia’s sovereign wealth fund.

Generations Fund will be managed by NSW Treasury Corporation, also known as NSW TCorp, which manages NSW government agencies’ financial liabilities. It handles assets valued at AUD92bn.

The treasurer told NSW Parliament that Generations Fund would “harness the unprecedented strength of our balance sheet to offset debt and insure against the AUD17bn fiscal gap forecast by 2056.”

In what he said was a world first, up to half of the investment returns from the fund would be used to establish a new My Community Dividend programme.

“The communities will decide how that money is spent to make their neighbourhoods healthier, happier and better places to live,” he said.