The Transport Asset Holding Entity of NSW (TAHE), is responsible for managing the state's rail assets including property, trains and infrastructure.
It was previously slammed by an auditor general's report as being "unnecessarily complex", while an Upper House inquiry found it to be a drain on the state's finances and recommended scrapping it all together.
On Saturday, the government announced it will convert TAHE into a non-commercial public non-financial corporation, similar to Sydney Trains, NSW Trains and Venues NSW.
The decision came after a request by TAHE for a further $615 million in funding in 2023-24 to cover contractual arrangements with the Public Rail Operators.
Treasurer Daniel Mookhey said the changes mean the extra funding is not required, and will also save the government a further $4 billion intended for TAHE under the previous operating model.
"This Government prefers to spend the public's money fixing the state's essential services, not propping up a budget con that went terribly wrong," Mr Mookhey said.
"The state's reputation for budget honesty was tarnished unnecessarily by the previous government's decision to use TAHE to hide the true cost of operating the railways from the state's accounts."
TAHE previously relied on a circular network of government cash, where the vast majority of its revenue came from licensing assets to state-owned Sydney Trains and NSW Trains, which were paid for with taxpayer-funded government grants.
One of the main new focuses of TAHE will be making better use of transport assets, particularly making surplus land near railway stations available to help solve the housing shortage in NSW.
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