Hopefully Carpenter is next!NSW Premier Morris Iemma has been...

Hopefully Carpenter is next!



NSW Premier Morris Iemma has been rolled by his party's powerful right faction, and will formally announce his resignation as the state's leader later on Friday.

Newcomer, Water Minister Nathan Rees, who entered parliament just 18 months ago, has been tipped to take over but Sky News reports he could be challenged for the job by Carmel Tebbutt.

Ms Tebbutt on Thursday accepted the left faction's nomination for the deputy premier's position, vacated by John Watkins.

Political analyst Bruce Hawker told Macquarie Radio the reports seemed to be "pretty much right, that there is going to be a spill".

Information from inside Friday's meeting suggested Mr Iemma failed to win the right's support and he will formally tender his resignation on Friday afternoon, despite dumping Treasurer Michael Costa in a bid to stave off a challenge.

Mr Costa earlier on Friday indicated he would challenge Mr Iemma's decision to dump him from the cabinet, prompting a showdown.

"I was advised by the premier that he desired that I not be part of his ticket and in the forthcoming reshuffle," Mr Costa told reporters.

"I respect his right to do that ... That's a matter for him."

Mr Costa then outlined his plans for the November mini-budget, and said he did not know what his future would be because the caucus meeting would determine that.

The caucus meeting was called to organise a frontbench reshuffle following the shock retirement this week of Deputy Premier John Watkins.

When asked if he would be happy to sit on the backbench if dropped from the cabinet, Mr Costa said he would not comment on his political future until caucus had made its decision.

"There's a caucus on. Anything can happen in a Labor caucus," he said.

He said he had not made any efforts to swing the vote his way.

"I've not rung one person about numbers in the caucus. That's not my style," he said.

"I'm about substance and about hard decisions and I'm about working to achieve outcomes for the taxpayer."

Mr Costa was the chief architect of the NSW's government's controversial electricity privatisation plan, which had to be wound back after the opposition opted to not support the plan in the NSW Upper House where the government does not hold a majority.

Mr Costa used his press conference to detail his concerns over the state's ability to retain its AAA credit rating, saying state revenues were being undermined by the slowing Australian economy.

He said NSW was facing a dramatic drop in revenues from stamp duty, approaching $200 million in the first two months of the 2008/09 financial year, as a result of the economic slowdown.

He also said the health budget had blown out by $300 million so far this financial year.

"My issue is with the funding of the north-west Metro (rail line) costing $12 billion, which is not sustainable unless we cut spending in other areas - our health and education programs," Mr Costa added.

He blamed a lack of reform "at the state and the federal level" for the blow-outs faced in areas such as health.

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