Next period of government in NSW will be an important test of Australia's future

What does the 2011 NSW state election mean for Australia? Quite a lot given that the coalition leader Barry O'Farrell will lead an inexperienced government after 16 years in opposition, and NSW will provide a testing ground for many of the nation's problems ahead.

On the one hand, all is not bleak. NSW still has considerable economic strength and possibilities beyond it having a triple AAA credit rating from Standard & Poor's and Moody's. In 2008-09, with NSW representing 32% of Australia's GDP ($402 billion) in line with having a third of Australia's population (about 7.1 million people), it also had the second highest per capita income at $57,000 and received almost 25% of Australia's private business investment (a record $53 billion).

NSW benefits greatly from tourism with over half of the 5 million international tourists per year (since 2005) visiting Sydney alone with that city receiving 25.5 million total visitors in 2009 who stayed 71.3 million nights.

NSW has vast coal deposits in the Hunter Valley, thus earning it about $1 billion in coal royalties per year which helps to offset the further decline of NSW manufacturing to Chinese imports, although the balance between mining and agricultural activity will also become a more important issue.

And NSW has benefited from the number of international student arrivals for vocational education and training increasing from 73,000 to 132,000 between 2007 and 2009.

But NSW also has many problems. With Sydney being the most expensive city to live in Australia, with recent RP Data estimating its median house price at $525,000, this makes it difficult for lower income earners to afford a home purchase. High housing costs also ensure that NSW residents have less money to spend on retail and elsewhere, although ABS data for 2006 (Australian Social Trends 2008) indicates that NSW already had 50 per cent of people aged 20-24 years living with their parents, second only to Victoria (51 per cent).

As recently highlighted, it remains to be seen just how NSW will fund its various needs given that its net debt and unfunded superannuation liabilities have increased as a share of revenue from 60 per cent in the early 2000s to an estimated 102 per cent in 2011. Already the proceeds of its recent electricity sale ($5.3 billion) have been largely spent by current promises.

How will NSW balance a number of important considerations, such as reversing a decade of chronic underinvestment in vital infrastructure, including roads, railways and public transport? How will it meet the needs of a population expected to increase to 9 million by 2036 with about three-quarters of such growth expected in Sydney.

Already, the ABS indicates that about 26 per cent of people in Sydney during 2006 used public transport to get to work or study (the highest rate of all Australian capital cities), but much greater investment is needed.

And what about NSW social welfare needs? A 2009 article indicates that all 220 public hospitals in NSW were either "battling to pay bills, struggling to attract staff or short of beds". According to Dr Brian Morton, president of the NSW branch of the Australian Medical Association, the system was "basically broke and all the health services are in trouble".

Sure the Coalition is right to indicate that it will conduct a complete audit of the NSW Government's financial position on the basis the state "cannot live beyond our means" as "expenses have grown at an average of 6.6 per cent" during the last 10 years while "revenues have only grown by 5.7 per cent".

But political realities will ensure that no pre-election commitment is guaranteed. We only to need to look at recent debate to know that some pain may lie ahead, although any desire to smash social welfare services will face considerable resistance. With Labor desperately trying to win votes by promising that no front line services will be cut to fund a proposed $4 billion increase in health spending over the next four years, its Health Minister Carmel Tebbutt reminded voters that the last Coalition government closed or downgraded 30 hospitals.

As the Greens suggest, it remains to be seen just how the Coalition will fulfill a variety of needs by the latter's promise to cut taxes, create 100,000 new jobs, fight federal Labor's carbon tax, invest $3 billion in NSW hospitals and hire 900 additional teachers.