Mr Mookhey blames a redistribution in GST revenue for the states and territories that he says has severely disadvantaged the state.
"I regret to report that the Commonwealth Grant Commissions' decision will cost NSW $11.9 billion over the next four years," he will say in a speech on Monday.
The state is now wrestling with a fiscal setback due to "an absurd GST decision" and its repercussions for the budget and the state's two remaining AAA credit ratings.
"The commission's decision will cost NSW more in lost revenue than COVID-19 did," he will tell the McKell Institute in Sydney.
"NSW has never had such a sudden fall in GST.Â
"Our share has fallen to 87 cents for every dollar paid in GST in this state."
The $11.9 billion revenue loss equates to 19,000 healthcare workers, 19,000 teachers, or 16,000 police officers over the next four years, he says.
"This can't continue," Mr Mookhey added, saying GST proceeds should be divided according to population share, with the federal government topping up smaller states.
Pointing to the next state budget due in June, Mr Mookhey is still planning to double down on cutting gross debt.
But he will also prioritise NSW families over the state's AAA credit rating.
"I think protecting family budgets takes precedence over the AAA credit rating, and I think having the flexibility to respond to the risk of recession is more important than the AAA in the current economic climate," he added.
But Mr Mookhey warned, given the revenue shortfall, the state's finances were "back to square one".
"It will almost certainly lead to a downgrade," he says.
NSW is currently rated AAA by global credit rating agencies Moody's and Fitch, after Standard & Poor's cut its rating on the state to AA-plus in 2020.
A lower credit rating means a borrower has to pay more to raise debt.
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