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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.