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Leaked briefing papers prepared for Friday's premiers' meeting show NSW wants the states to forgo up to $6.8 billion in hospital funding in order to get a commitment from the Commonwealth that it will continue to link its funding to costs.
The first Abbott budget in 2014 flagged a new funding formula from 2017-18 that would have limited increases in funding to the consumer price index and population growth rather than rapidly growing cost of running hospitals.
At the leaders' meeting on Friday, NSW Premier Mike Baird will argue for continuing to index Commonwealth grants in line with so-called "efficient costs", but will accept that only 45 per cent of the efficient costs should be covered rather than 50 per cent as had been promised by the Gillard government.
"NSW will not seek to restore this cut," the document says. In addition, NSW will not seek to hold the states to a Gillard-government guarantee of $16.4 billion in extra funding over the six years to 2019-20. Combined, the concessions are expected to save the Commonwealth between $6.4 billion and $6.8 billion, compared to the commitments entered into by Labor.
The NSW share would be $2.79 billion, the Victorian share $2.18 billion.
The "efficient costs" would continue to be set by an independent hospital pricing authority without input from the Commonwealth government.
Without a concession from the Commonwealth, the states face the prospect of losing $80 billion over 10 years as grants for both hospitals and schools increase more slowly.
Ahead of the meeting at the National Press Club in February, Treasurer Scott Morrison held out little hope of an improved funding formula, saying there was "no licence for any treasurer to go around asking the public for more buckets of money".
Prime Minister Malcolm Turnbull is understood to have made an interim offer to boost hospital funding by around $5 billion over four years. There is speculation that in order to provide for increases beyond that, he might guarantee each state a portion of future income tax revenue.
The state and Commonwealth treasurers meet in Canberra on Thursday, followed by the leaders on Friday.
