Economists have warned that the Abbott government should not cut taxes again until its budget is in surplus or it raises more revenue, after Treasurer Joe Hockey said he would like to take tax cuts to the next election.

Mr Hockey said on Sunday he would like to be in the position to promise more tax cuts at the next election despite his government's $41.1 billion budget deficit.

But the Grattan Institute's John Daley has warned Mr Hockey's plan could put the budget in more trouble because his government has ruled out serious proposals to increase revenues at the same time.

He says the plan to cut taxes without raising new sources of revenue appears to assume that those tax cuts will be funded by future surpluses.

But the likelihood of reaching surplus by 2018-19 looks "extremely unlikely," he says, and the only other way for the government to cut taxes without worsening its budget deficit would be to cut even more state funding for hospitals and schools.

"The test for tax cuts should be not that we might be in surplus some time in the distant future but that we are in surplus in the current budget year," Mr Daley told Fairfax Media.

"The government could fund more tax cuts now if they took existing Commonwealth transfers for schools and hospitals and cut them further and then told the states: 'You figure it out', but that's not called leadership.

"That's called taking cost-shifting to a whole new level," he said.

NSW Premier Mike Baird on Monday called for an increase in the rate of the GST from 10 per cent to 15 per cent to provide enough revenue to fund the national health system and prevent the federal-state financial system from "tumbling over a fiscal cliff".

Mr Baird said the current state of the federal-state financial system meant Australia's capacity to deliver quality health care was compromised.

"This is the single biggest issue that confronts us as state and commonwealth leaders," Mr Baird said.

Former Reserve Bank board member Warwick McKibbin warned it was "not a good idea" for the federal government to pursue tax cuts if those tax cuts were going to expand the deficit.

He said if the government wanted to cut taxes it would also need to cut spending "or raise some other tax."

"There's no other way to get the budget to stabilise, and give a tax cut," Mr McKibbin said.

Mr McKibbin says recent policy proposals from the Grattan Institute – such as cutting superannuation tax concessions – are "pretty good" ideas but "it would be far better to do a broader assessment of the tax system as a whole" to improve the integrity of the system and fix the Commonwealth budget.

The 2014/15 budget papers show the federal government gave $46.3 billion to the states last financial year.

That funding included $16.4 billion for health, $14.9 billion for education, $5.7 billion for infrastructure, $2.1 billion for community services, $1.9 billion for affordable housing, and $1.8 billion for skills and workforce assistance.

With Sean Nicholls

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