The Australian Bureau of Statistics data showed NSW business spending grew by almost 10 per cent to $29.2 billion last year.
Business investment across the rest of Australia in 2016 fell by more than 20 per cent.
Treasurer Dominic Perrottet said the result was a vote of confidence in the long-term strength of a diverse NSW economy.
“The NSW Government has worked incredibly hard to make NSW the best place in Australia to do business, and this data shows businesses agree,” Mr Perrottet said.
Housing investment grew by 5.2 per cent in the December quarter to the highest level on record.
“The record levels of housing investment show our commitment to increase housing supply is delivering results,” Mr Perrottet said.
The current economic expansion will deliver more future opportunities for the people of NSW.
“This is great news for all of us here in NSW because when businesses invest, they are investing in jobs and opportunities for the hardworking men and women of our state,” Mr Perrottet said.
The business investment data follows the recent NAB Business Survey that showed conditions faced by NSW businesses are the most favourable in the nation.