The current standoff between the Commonwealth and the states over hospital funding has been framed as a failure of negotiation but the root cause is a failure of imagination.

Australia’s health system is being squeezed by a shortage of funds, and it won’t be fixed until we talk about how and where to raise more money.

Put simply, our Chief Minister and his counterparts need to rethink the foundations of Commonwealth and state financial relations, not squabble over decimal places.

The reason the state of our hospitals, schools and other essential services are getting worse is that, while Australia is one of the richest countries in the world, our governments act as if we are poor.

Forget all the nonsense about Australia being a high-tax country. If we were to collect just the average amount of tax collected by OECD countries, we could spend an extra $100 billion per year on services.

Most of our financial woes can be traced back to the Howard government. Back in 1999 John Howard and Peter Costello relied on state and territory leaders to persuade the public that their GST was a good idea. But back then Howard and Costello promised the public, and the premiers, that the GST would be a “growth tax” that would provide a reliable and growing revenue base

But that wasn’t true.

In reality, GST revenue has grown more slowly than the economy for decades. Indeed, if GST revenue had kept pace with GDP, then since 2000 the states and territories would have been $231 billion better off.

Just this year alone the states and territories will miss out on more than $20 billion compared with what was originally promised by the GST deal.

But while spending on doctors, nurses and new medicines are rising fast, the poorly designed GST is stuck in the slow lane.

This structural reality means negotiating tactics and blame shifting between the Commonwealth and the states and territories will do nothing to cure the underlying problem. There is no reason that the ACT’s Chief Minister Andrew Barr, Australia’s longest-serving leader by a country mile, shouldn’t be leading the charge for such big change.

But instead of starting a new conversation about how to make our health system healthy, our elected leaders are stuck in stalled negotiations about Band-Aid solutions.

The problem isn’t that the Commonwealth is mean or that the states are greedy.

The problem is that Australia’s main mechanism for funding state services is broken, and what was good enough for John Howard at the turn of the century simply isn’t working 25 years later.

Just as Howard had a big idea back then, it is now time for new big ideas now. Tinkering with Howard’s tax plan has gone on for too long – it’s time for today’s leaders to lead.

The states need more revenue, and the Commonwealth is giving huge amounts of the gas we export away for free.

If Labor introduced the 25 per cent tax on all gas exports proposed by the ACTU, it would collect an additional $17 billion per year.

It could give any or all of that new revenue to the states to be divided up in the same way the Commonwealth Grants Commission divvies up the GST.

There’s nothing in the Constitution that says the GST is the only way to collect money for the states and territories.

Australia is one of the world’s largest exporters of gas yet most of the big new export gas wells in the Commonwealth waters pay zero royalties and often zero Petroleum Resource Rent Tax.

Indeed, the Commonwealth collects more each year from HECS than it collects from the PRRT.

Just as Band-Aids can hide an infected wound, endless negotiations about how best to divide up the shrinking GST pie are hiding the truth.

Put simply, if we want better services then the Commonwealth needs to collect more revenue and distribute it to the states and territories. More Band-Aids will harm the patient, not protect them.

Big problems require bold leaders that are willing to admit when things are broken and bring people on board for new solutions.

Australia is rich enough that we can give more than half the gas we export away for free. We are rich enough to spend $14 billion per year on fossil fuel subsidies.

And, if we choose to, we are rich enough to spend a lot more on health, education, and other essential services. But we can’t have world-class services and a poor country’s tax collections.

Australia can easily afford a world-class public hospital system.

But what we can’t afford is to keep pretending we can bicker and blame shift our way out of the structural problems caused by the steady decline of John Howard’s GST.