NSW Premier Barry O'Farrell says the question of where to find $1.76 billion for education funding put him between the "devil and a hard place", but his government ultimately decided to put school kids first.
The coalition-led state is the first to sign up to Federal Labor's offer of a two-for-one funding arrangement, which would deliver $3.27 billion in commonwealth funds for NSW schools over six years, starting next year.
Under the agreement signed by Mr O'Farrell and Prime Minister Julia Gillard in Sydney on Tuesday, the NSW government must find savings in its own budget to round out the total funding boost to $5 billion.
Some of that money may come from the TAFE system.
"Vocational educational reforms are being pursued by the government and yes, IPART will be looking at issues around fees and subsidies, and that will be part of the package," Mr O'Farrell said.
"Ultimately, we've had to make some tough decisions ... we are prioritising school education."
Other funds would be unlocked by keeping Inter-Governmental Agreement taxes in place longer than planned and by introducing a business efficiency dividend by July 2015, he said.
Announcing the partnership on Tuesday, Ms Gillard said the reforms would boost funding for 1.1 million NSW schoolchildren and included a promise from NSW to index its school spending at three per cent annually from 2016.
Under the plan, the state would achieve at least 95 per cent of the school resource standard by 2019.
Ms Gillard said beyond offering a bigger pot of money, the deal would cater better to children with special needs and those in regional areas and top teachers would be rewarded with $100,000 salaries for staying in the classroom.
Asian languages would be a focus and principals and parents would be given more control over school-level decisions.
"No child will be left behind and no school will be left behind," Ms Gillard said.
The Labor-led NSW opposition has cautiously applauded the deal, with leader John Robertson telling reporters any cuts made in the next budget would be scrutinised.
"We'll be looking very closely at that. But today is a very pleasing and historic day for NSW and education in this state," he said.
The Greens said it was "heartening" to see money going into schools but TAFE should not foot the bill.
"It is one step forward and one step back to increase funding to public schools while imposing further cuts on the already struggling TAFE sector," Greens MP David Shoebridge said.
The Greens argue that ending subsidies to the wealthiest private schools, or lifting the tax rate on pokies in clubs to match taxes on poker machines in pubs, would allow a boost to primary and secondary schools without a cut to the tertiary sector.
The head of the NSW Teachers' Federation, Maurie Mulheron, said any further cuts to the TAFE system would be a "travesty".
"TAFE is already underfunded and under-resourced and needs more funding," he told AAP.
"We'll seek a meeting with the minister to clarify exactly what he meant."
Meanwhile, the Public Service Association wants the government to immediately reverse cuts to school support jobs, such as office staff.
"We're thrilled that NSW schools will receive more funding under the agreement. But we won't see real improvements in schools if we continue cutting jobs of the staff who support education," PSA president Sue Walsh said.
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