States face $80bn hit on schools, hospitals

MORE than $80 billion will be slashed from schools and public hospitals in future budgets.

MORE than $80 billion will be slashed from schools and public hospitals in future budgets, in an overhaul of federal-state finances designed to restore the nation’s bottom line, but at the likely ­expense of the Coalition states’ collective popularity.

Joe Hockey revealed plans yesterday to adopt “sensible indexation arrangements for schools’’ from 2018 and hospitals from the 2017-18 financial year.

The move will rip more than $80bn out of the health and education systems by 2024-25, exposing the Coalition states to years of political pain that will be exacerbated by cuts to other programs.

The Treasurer has also backed the abolition of key national partnership agreements on preventive health, improving public hospital services and some concessions for pensioners and Seniors Card holders.

Mr Hockey warned the states and territories that the federal funding system required an overhaul.

“At the moment, duplication and overlap between commonwealth and states blur where the buck stops,’’ he told parliament last night.

“Over the next 18 months we will work with state and territory governments to strengthen the federation and ensure that the overlap between the layers of government is reduced or removed.’’

The overhaul of federal payments to the states will also likely tear many millions of dollars in funding from the states before 2017-18, posing an immediate funding threat to the Victorian and NSW governments as they face looming elections.

Schools and hospitals are two of the biggest beneficiaries of the nation’s finances, with the government warning the Labor-era funding would have seen hospitals receiving $40bn by 2024-25 and schools more than $30bn.

The government argues that medium-term funding for the two sectors had become so loose that governments lacked accountability for their service delivery and decision-making.

The decision to hack into schools and hospitals will be partly offset by an $11.6bn infrastructure growth package and $4.5bn worth of extra growth in GST entitlements. In 2014-15 the states will be handed more than $100bn in total payments for specific purposes ($46.3bn) and general revenue assistance of nearly $55bn.

Payments to the states will make up nearly 25 per cent of total commonwealth expenditure in 2014-15.

However, the government argues that shortfalls in spending in areas under direct state responsibility should be plugged by the states.