In what was the centrepiece of its latest budget, the government announced yesterday it would spend $340million to replace heavy rail with light rail from Wickham to Newcastle.

The amount is nearly half of the proceeds it predicts it can raise from a proposed 99-year lease of the Port, following the recent lease of Port Botany and Port Kembla.

The $340million would come on top of the $120million the government has already committed to  rail changes in the inner city, including the construction of a transport interchange at Wickham.

The Hunter Infrastructure and Investment Fund will co-ordinate the money.

A further $10million would be spent specifically on exploring the potential to link the city centre to surrounding suburbs, beaches and wider region.

‘‘This will be more than a revitalisation: it will be the reinvention of Newcastle as a modern city,’’ Treasurer Mike Baird said.

While debate about the rail line has raged for decades, many key groups and politicians have said light rail could be an ideal fix compared to replacing heavy rail with buses.

But Mr Baird was clear the project would come at the cost of the privatisation of the port.

‘‘Obviously the capacity to fund it is strongly linked in to the transaction, that’s the basis,’’ he said.

‘‘That is the reason we have acted today. There is a point-in-time opportunity ... We expect a huge array of interest.’’

Mr Baird sought to justify the long-term lease of assets as the ‘‘recycling of mature assets’’,  amid falling revenues and constant threat to the state’s triple-A credit rating.

He moved swiftly yesterday to introduce legislation to Parliament to enable the lease.

Newcastle MP Tim Owen told Parliament the decision brought the government’s commitment to the city centre to a total of about $900million.

‘‘This will put Newcastle back on the map,’’ he said.

Mr Owen said a project co-ordination group, which was already considering how to roll out rail changes in the city, was to report back to cabinet on how to proceed by year’s end.

Labor described the light rail promise as blackmail for the region to give up its key asset.

‘‘Newcastle Port is an economic asset generating $70million of revenue a year – and billions more to the Hunter over the longer-term horizon,’’ Opposition Leader John Robertson said.

‘‘Once privatised, that revenue stream is gone forever – a stream worth much more than just $340million.’’

The cost of doing business through the port would soar, Labor ports spokesman Ron Hoenig said.

In comparison, the Illawarra region received $100 million for infrastructure investment from the Port Kembla transaction.

Yesterday’s budget also confirmed the provision of $585million for the rollout of the National Disability Insurance Scheme in the Hunter, and up to $120million this year for the Resources for Regions program,  aimed at returning some mining profits to affected communities.

About $40million would be allocated to successful applications made before June 11, with $80million for those who made applications before October.

Singleton and Muswellbrook are among the councils to have already made applications and will need to wait to learn if they will get a share of the money.

Newcastle City Council was also eligible but did not submit an application. It may get another opportunity to apply.

The budget also delivers more money for the Newcastle justice precinct, with a further $63million for its construction.

The government has  continued with its housing acceleration fund as well, with two Hunter sites included this year.

Wastewater network upgrades at Farley and Rutherford will be fast-tracked to support the construction of 5300 new homes. 

An intersection on the New England Highway at Lochinvar and its water mains will also be upgraded to enable 5000 new homes to be built.

But the budget was silent on how the rest of the Hunter Infrastructure and Investment Fund would be spent.

The fund’s board made recommendations this year on the remaining $60million of the $350million election commitment.

The budget papers say the government is considering the recommendations.