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Australian government threatens to redirect $23B hospital funding if states reject offer

Written by Isaac FrancisPublished Dec. 12 2025Last Updated Dec. 12 2025

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The federal government has warned it will redirect a $23 billion hospital funding boost toward its own health priorities if states refuse the offer, amid escalating tensions over the National Disability Insurance Scheme and rising healthcare costs.

Prime Minister Anthony Albanese criticised Queensland Health Minister Tim Nicholls for publicly labeling the funding offer inadequate, saying the disclosure undermined efforts to negotiate in good faith.

"Mr Nicholls has one job. He should do it," Albanese said, cautioning all states and territories against inflating demands from $17 billion to $30 billion.

The federal budget is under pressure, with sources confirming the $23 billion proposal is final.

If rejected, funds will be allocated to expanding Medicare urgent care clinics, aged care, and increasing bulk-billing rates, which have surged from 7 million GP visits in October to 11 million in November.

The standoff dates back to a December 2023 national cabinet deal linking hospital funding increases to state commitments on the NDIS.

States missed the July 1 deadline, and hospital funding expectations grew from $13.2 billion to $17 billion, with some states seeking $30 billion amid rising medical costs and pay rises for nurses.

Health Minister Mark Butler will press states at Brisbane meeting to recommit to the new Thriving Kids initiative and NDIS growth targets, while Albanese emphasised the federal government’s prior investment in 137 urgent care clinics nationwide.

Treasurer Jim Chalmers, ahead of next week's mid-year budget update, signaled fiscal caution, noting the government must balance rising costs and priority spending.