new south wales was founded (begun) in 1788, by the british who set up a small colony which became known as sydney town, and grew into the city of sydney. the british colony of new south wales originally included more than half of the australian mainland, as well as new zealand, lord howe island and norfolk island. during the 19th century large areas were separated to form the british colonies of tasmania, south australia, victoria, queensland and new zealand.