Liberal backbencher Angus Taylor has called on the states to name their price on health and education funding.

“There are two options here. Option One is that the States find efficiencies in their current system to fund what they’ve got to fund ie larger class sizes and big productivity gains in health. Option Two is we raise taxes. The obvious tax to raise is the GST. Option Three of course is that we keep running Budget deficits; that’s not a sustainable option.

“No-one knows who owns health in this country and no-one knows who owns education. It’s a complete blancmange. In business, you want accountability and responsibility fully aligned, so you know who owns what. We’ve got to get it clear,” Mr Taylor said.

“This is exactly what the Commission of Audit recommended, that the States play a role in raising taxes. The Federal Government is saying we will be happy to have a conversation with you about more money for health and education beyond the next three years, but if we’re to make ends meet, then you need to talk to us about what tax rates you’re going to recommend.

“If the States want an extra $80 billion and they want an increase in the GST to fund that, they’re going to have to come to us and tell us that. It’s going to require a significant increase in the GST to deliver that - maybe three, four, five per cent – with all of the compensatory effects you have to take into account.

“But this is the new Federalism. For the first time since the 1940s, the States would be now taking responsibility for their tax rates. That’s effectively where we’re going – right up against 70 years of practice.

“This is the live debate. Are we going to move towards two layers of government, where the States are just completely controlled by the Federal Government, or are we actually going to reassert a role for the States in taxation? We’ve simply got to do this, because there’s no more money.”