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

Abstract

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.