Mick Sheils grew up in an era of Labor giants.

In 1969, at the age of 21, he cast his first vote for Gough Whitlam, and was a member of the party during the reforming Hawke-Keating governments of the 1980s and 90s.

After almost a decade of “gut-wrenching” defeats in the New South Wales and federal elections, he was feeling “invigorated” on Friday afternoon after attending Bob Hawke’s memorial service at Sydney’s Opera House.

“But it made me sad because I think – if only we had half the quality of that cabinet in the Hawke and Keating governments,” he said.

“If only we could get a leader like Bob Hawke, or Neville Wran for that matter. But they don’t come along every day. You don’t go down to the shop and buy a leader like that, it’s something that just happens.”

A Labor member for more than 50 years, Sheils, from Dolls Point in Sydney’s south, is supporting his local MP Chris Minns against the Strathfield MP Jodi McKay in the NSW Labor leadership contest.

Delayed after Michael Daley’s defeat to Gladys Berejiklian in March because of the federal election, the contest has been slowly bubbling away since the end of May.

Minns, 39, is campaigning on a platform of generational change after two consecutive defeats in NSW and has said he will end Sydney’s lockout laws, introduce pill testing at music festivals and ban donations from the fossil fuel industry.

A former assistant secretary of the NSW Labor party, he entered parliament as the MP for Kogarah at the 2015 election and has served as the shadow minister for water since 2016.

His opponent, McKay, 49, is a former Newcastle MP, who served as a junior minister in the Rees and Keneally governments before losing at the landslide 2011 election that swept Labor from power after 16 years in government.

She returned to parliament in 2015 as the MP for Strathfield after an Independent Commission Against Corruption inquiry into illegal donations, which revealed she had been the victim of a campaign – orchestrated by Labor’s right-wing faction boss Joe Tripodi and Newcastle businessman Nathan Tinkler to defeat her.

The inquiry also found that McKay had rejected an attempt by Tinkler to offer her illegal donations, leading the former Labor leader Luke Foley to describe her as “incorruptible”.

We can’t just crawl up in a ball and be a small target party Rose Jackson

McKay, who is now the opposition spokeswoman for transport, is using that reputation to put restoring trust in the Labor brand at the centre of her pitch. Backed by the party’s head office and most of the current frontbench, she says she’ll use her upbringing in Gloucester in the Hunter Valley to reconnect the party with regional voters.

While the Labor head office has backed her, the right’s loyalties are split and the left has not fallen in behind either candidate, which means how the caucus vote will shape out remains unclear.

It is also the first time NSW has given the party rank and file a 50% say in who the new state leader will be, adding an element of uncertainty to the mix.

In the Hunter region, for example, while most of the region’s MPs have publicly backed McKay, some senior figures in the party’s branches, including former Newcastle federal MP Sharon Grierson, are supporting Minns, at least in part, because of a more-than decade-old grudge relating to McKay’s preselection over the then sitting MP in Newcastle, Bryce Gaudry, in 2006.

Further north towards the coal mining areas around the Hunter Valley, the support among members is more clearly defined for McKay. Spooked by the high One Nation vote in the seats of Paterson and Hunter at the federal election, many members there see McKay as better able to win back traditional working class voters because of her ties to the area.

John Leao, 18, from the Maitland branch of the ALP, said he was voting for McKay because “she’s a local”.

“She grew up in Gloucester and spent many years here as a local journalist so she’s in touch with the needs in our region – for example issues with youth unemployment and amongst Novocastrians in general,” he said.

The policy tussle has failed to set things alight so far and there remains an air of awkwardness about two right-faction MPs trying to differentiate themselves to the party’s 17,000 members.

I think we should admit that what we’re doing isn’t working and that we need new ideas Chris Minns

At a debate at the Teacher’s Federation in Sydney on Wednesday night, McKay and Minns often seemed to be trying hard to find ways to appear to disagree. Consider this back-and-forth on the 2.5% wages cap on the NSW public service introduced by the Liberal government in 2011, which Labor opposes:

Minns: “One thing that’s really hampered wage growth in this state in particular has been the wages cap on public servants. Productivity in the public sector has gone down because there’s nothing to bargain with across the negotiating table, and it’s bled into the private sector too.”

McKay: “I think that is a really important issue for all of us in the Labor party … we went to the election indicating we would remove the cap, but I think it is important that when you’re in government … there needs to be a framework of productivity increases and the involvement of the industrial relations commission.”

Minns: “Sure, but let’s be honest it’s got to go. It’s hurting productivity in NSW.”

McKay: “I said it has to go.”

If exchanges like that don’t exactly suggest a cavernous policy difference between the candidates, rest assured that behind the scenes NSW Labor is not giving up on its reputation as a home for political blood sport.

Minns was the target of an invoice leaked to the ABC last week, which showed that in 2013 he received $5,000 of a $100,000 donation from a Chinese businessman to federal frontbencher Chris Bowen. The money was to help Minns move back from the US to run Bowen’s campaign for re-election that year.

A document circulated internally among Labor members recently described long-term members of the NSW right as believing Minns’ leadership would be “catastrophic” for the party. Many of the current frontbench are privately scathing, too. Minns is often described as a party apparatchik because of his time in the Labor head office, and his opponents describe him as overly ambitious and lacking in team spirit.

The Port Stephens MP and shadow minister for childcare, Kate Washington, told Guardian Australia she was supporting McKay because she was a “hardworking team player with integrity”.

“It’s really important to me and our membership, that we have a leader who’s focused on the needs of communities right across NSW, especially outside of Sydney,” she said.

“I’ve known Jodi for years, and I know she truly understands rural and regional NSW.

“We need someone who can unify our movement, rebuild trust and earn the respect of communities across NSW. Jodi has the passion, commitment and drive to do the hard work that’s required to form government in 2023.”

If Minns is being described as in insider, he isn’t acting like one. The Kogarah MP has been open in his criticisms of the party’s direction. At the Teachers Federation debate, he took a swipe at Daley for lacking policy ambition and failing to take clear positions on issues such as the lockout laws and pill testing.

“I think we should admit that what we’re doing isn’t working and that we need new ideas,” he said. “A plan that sees the people of NSW vote for us and not just against the government.”

Rose Jackson, the newly installed upper house MP and former NSW Labor assistant general secretary from the party’s hard left, is backing Minns and agrees that the party needs to show more policy ambition.

“There seems to be a bit of a view that if we just keep going the way we’re going and the Liberals make a few missteps, we’ll fall over the line, but we need to be a bit bolder and have more of a vision,” she said.

It’s an approach that seems out of step with the party’s broader consensus following the federal election defeat in May, in which an ambitiously reformist and progressive policy platform was largely rejected by the electorate.

Jackson accepts that, but also thinks retreating to small target politics would be a mistake.

“It is hard to know what lessons to draw, in a way, because the state and federal party did different things,” she said.

“But these things are multi-faceted. Leadership has something to do with it, how we campaign and engage with the community has something to do with it.

“But we can’t just crawl up in a ball and be a small target party. I don’t think that’s the way forward. Look at Dan Andrews in Victoria and Mark McGowan in Western Australia – there’s plenty of good examples of how Labor can be really successful with that agenda.”

For members such as the 81-year-old Shiels, while neither candidate might reach the heights of Hawke or Whitlam, he hangs on to hope that Labor can find its way out of the wilderness.

“As Bob Hawke said, always look forward, never look backwards. We’ve had a dreadful time these last few years, but we’ve got to be focusing on the future,” he said.