NSW Treasurer Gladys Berejiklian has refused to rule out increasing state taxes to fill the $17 billion hole emerging in state finances over coming decades.
The "fiscal gap" was revealed in the state government's Intergenerational Report, released on Thursday.
The report finds that changes, including the state's ageing population, will increase the gap between the money needed to run NSW and the money brought in to $17 billion by the middle of the century.
On Thursday, Ms Berejiklian would not rule out an increase in state-based taxes as a potential solution.
"That is the worst-case scenario," she said.
An optimistic Ms Berejiklian, though, said she was confident that there would be no need to make deep cuts to services or raise taxes because developments in technology and government innovations would improve NSW's financial position in coming decades.
"Being innovative in the way we provide services reduces the costs," she said. "When governments use new technology they can reduce cost but provide a better service."
Ms Berejiklian told a lunch of the Committee for Economic Development of Australia that she believed that the "quality and quantum" of services would continue to increase, notwithstanding the state's fiscal challenges.
She pointed to the fact that the median time spent by women in hospital after giving birth had dropped from 10 to three days over past decades as a concrete example of advances in healthcare reducing costs.
The state opposition, however, laid the blame for the future challenges faced by NSW at the feet of the Baird government.
"The government has continued to overspend, with a milestone $10 billion blowout on its major projects," said Shadow Treasurer Ryan Park.
The report finds that state governments will have to reform their revenue collection but also rely less upon "volatile" taxes - such as stamp duty, which is worth about $7 billion to state coffers.
The Treasurer did not say if the government was looking at a long-term plan to move away from stamp duty but dropped hints that reminded of a proposal by Mike Baird to raise the federal GST to replace some state taxes.
Ms Berejiklian said the gap in state finances would only balloon to $17 billion if the government did not take remedial action, or if external factors did not improve.
A continuation of recent increase in Commonwealth funding for NSW hospitals would also substantially improve the state's fiscal position, Ms Berejiklian said.
Uncertainty over whether that increase would continue accounted for about one-third, or less than $6 billion, of the "fiscal gap".
A spokesman for federal Health Minister Sussan Ley said the federal government had increased state health funding by some 20 per cent over the next three years.
The federal government would later give "consideration [to] longer-term arrangements" beyond 2020, the spokesman said.
