Malcolm Turnbull and Scott Morrison are preparing to ditch Tony Abbotts massive cuts to state hospital funding.
Although federal sources insist the deal has not been finalised, states are confident they will be a four-year hospital funding agreement to 2020 based on the original formula agreed under the Gillard Labor government. This would create a $5 billion hit to Mr Morrisons first budget.
The Australian understands the four-year agreement would be tied to a revolutionary tax reform proposal under which the states would be offered a share of income tax beyond 2020 to fund health and education.
Mr Turnbull and Mr Morrison have mapped out a health funding compromise to present to state premiers and treasurers at Fridays Council of Australian Governments.
Mr Abbott and Joe Hockeys first budget, in May 2014, included $80bn in cuts to hospitals and schools in the period to 2024-25.
Mr Abbott argued funding was not being cut, rather that Labors unfunded increases in spending were not being covered.
