Foreign investors in the NSW residential property market will pay an additional four per cent stamp duty on their purchases from budget day on June 21.
State treasurer Gladys Berejiklian said the surcharge, along with a 0.75 land tax surcharge for foreign investors from 2017, will raise more than $1 billion in revenue over four years.
The measures would help fund essential services and offset $1.8 billion in business tax cuts announced on Tuesday.
Ms Berejiklian said she believed overseas investors would not be deterred by the changes.
"We feel this is a fair contribution from foreign investors," Ms Berejiklian told reporters in Sydney.
"We also know that most foreign investors are likely to absorb this cost and proceed with their transaction regardless."
By imposing stamp duty and land tax surcharges, NSW is following the lead of Victoria, which from July will lift its stamp duty and land tax surcharges to seven per cent and 1.5 per cent respectively.
Ms Berejiklian wasn't sorry for taking a cautious approach in NSW, but said she was heartened by the results in Victoria.
Foreign investors purchase around 6000 residential properties a year, with around 20,000 properties owned by foreign investors overall.
"We appreciate housing affordability is a challenge for many people in NSW and you need to consider the unintended consequences of any actions," she said on Tuesday.
"We are confident this policy change will not have any adverse impact in NSW. It's all upside."
Ms Berejiklian wouldn't rule out increasing the surcharge in the future.
"This is the rate at which we believe is best to start this policy and we've thought long and hard about it," she said.
"We'll look to see what impact it has in terms of our revenue."
Ms Berejiklian said the NSW government had attempted to place downward pressure on house prices in the state by boosting housing supply, particularly in Sydney.
The challenge was turning development approvals into construction.
"Supply, supply, supply is the answer to housing affordability and we appreciate that the way you introduce downward pressure on house or unit prices is by having more supply," Ms Berejiklian said.
"We've worked really hard to encourage investment, support more properties being on the market."
