Australia's most populous state, New South Wales, votes today in an election that could hint at trouble for Prime Minister Scott Morrison.

Polls suggest voters are split 50-50 between the coalition and the Labor opposition and there could be a hung Parliament. This would be a poor result for the coalition, which won 54 of the state's 93 Lower House seats in the 2015 vote.

The declining support for the government has been blamed on anger at Mr Morrison's federal coalition, which has alienated voters because of its infighting.

But there has also been public anger at the state government's moves for a costly project to rebuild two Sydney sports stadiums, plus concerns about growing congestion, drought, rural water supplies and the impact of climate change.

NSW Premier Gladys Berejiklian, who replaced the former coalition leader in 2017, is vying to be the first woman to win a state vote in NSW. She is known as a hard-working pragmatist but is a lacklustre media performer, and has struggled to deliver a strong message about the state's economic health and its high spending on rail and roads.

However, her prospects suddenly improved this week, as Labor leader Michael Daley suffered a terrible end to his campaign.

A video emerged on Monday in which Mr Daley appeared to blame Asian migrants for adding to Sydney's congestion and rising home prices, forcing some younger people to leave the city. The video was filmed during a community event last September, two months before he took over as Labor leader.

"Our young children will flee and who are they being replaced with? They are being replaced by young people from typically Asia with PhDs," he said in the video.

"It's not a bad thing because Asian kids are coming to work here, it's a bad thing because I'd like my daughter to live in Maroubra (a Sydney suburb) rather than St Kilda (a Melbourne suburb)."

The comments forced Mr Daley into damage control, especially as several tightly-fought seats in Sydney have large Asian migrant communities, particularly from China.

Mr Daley apologised, saying he had been making a point about housing affordability. He has otherwise been particularly welcoming of the growing Chinese-Australian community in his electorate. "I could've expressed myself better," he said. "No offence was meant."

But Labor was taking no chances, and paid for adverts in local Chinese newspapers as it tried to fend off accusations of racism from Asian community groups.

Ms Erin Chew, founder of the Asian Australian Alliance advocacy group, said Mr Daley's comments were "targeted at Asians, and Asians from specific countries - China, Indonesia, Malaysia, Singapore".

"It is extremely racist and offensive," Ms Chew told Nine media.

Mr Daley's troubles continued on Wednesday when he resoundingly lost a televised debate against Ms Berejiklian. He stumbled over policy details, including about his plan to boost funding on education.

NSW, which has a population of about eight million, has one of the healthiest economies in Australia, with an unemployment rate of 4.3 per cent, the lowest in the nation.

But its fortunes are changing, due to the sudden end of Sydney's housing boom, which had provided a steady source of revenue from state taxes on property sales. The state is headed for a budget surplus of A$846 million (S$810 million) this year, but revenue from property sales has declined sharply.

Whoever wins will likely have a difficult task as the economy slows but the result will also be seen as a measure of Mr Morrison's fortunes.

In two weeks, he is expected to announce a federal election, which is due to be held in May.

Polls show his federal coalition is well behind Labor - and a poor result in NSW will be seen as confirmation that his prospects are grim.