This paper asked whether the 1999 IGA has succeeded in putting State public finances on a more sustainable footing. It argues that while GST revenues have increased at a rate of 8.9 per cent per annum in nominal terms over the period, a combination of the parlous condition of the States’ remaining own-source taxes and the rapidly increasing expenditure pressures mean that the States are under increasing financial pressure. Given this situation, the second half of the paper sketched one proposal to reform Australian fiscal federalism. The Rudd Government’s proposal to assume financial responsibility for Australia’s 750 public hospitals has three clear advantages. Firstly, it would resolve the myriad cost-shifting and accountability problems which have afflicted federal-state relations in the area of health policy. Second, it would help restore the fiscal balance in the Australian federation by assigning the area of fastest public-expenditure growth to the level of government with the greatest fiscal capacity. Finally, at a political level, the health-reform agenda seems to be gathering momentum and there is a growing willingness among State and Federal governments to consider radical reform proposals such as transferring responsibility for public hospitals to the Commonwealth. Only time will tell if such an initiative becomes a defining achievement of the Rudd Government’s first term.