Righting Australia’s Vertical Fiscal Imbalance: Transferring Public Hospital Funding as an Option for Reform

Richard Eccleston[1]

Table of Contents

The 1998 GST Agreement and its aftermath
State Finances in the 21st century
Expenditure Pressures: The public-hospital funding debate
Reforming federalism: Issues and objectives.
Arguments for fiscal decentralisation
Arguments for fiscal centralisation
Vertical fiscal balance and financial accountability
Reforming Fiscal Federalism: Challenges and Opportunities
Transferring Public Hospitals


Vertical Fiscal Imbalance (VFI) is the root cause of intergovernmental conflict in the Australian federation, and un-remedied will limit the dividends of any revitalised Council of Australian Governments. The paper argues the while the GST has been an effective growth tax, it has exacerbated Australia’s VFI and is unlikely to yield sufficient revenues to meet the expenditure pressures confronting the States. The paper suggests that transferring the funding of public hospitals to the Commonwealth will enhance the sustainability of State public finances and reduce the VFI.

[1] The School of Government, the University of Tasmania, Richard.Eccleston@utas.edu.au. I would like to thank Agenda’s editor and two anonymous referees for their detailed comments on an earlier draft of this article, as well as feedback from various colleagues in The School of Government of the University of Tasmania. The usual caveats apply. The analysis presented in this article served as the basis for an invited submission to the Senate Select Committee on State Government Financial Management.