The Federal Government’s rejected its first recommendation from the Commission of Audit and will continue to back subsidised transport to Tasmania.

But Prime Minister Abbott again warned Australia is facing a tough budget next month.

Jacob Shields reports.

TRANSCRIPT

The Prime Minister hit the ground running this morning, the cold weather a sure sign of things to come.

State and Territory leaders were in Canberra for the first heads of government meeting.

With one topic high on the agenda.

Tony Abbott, Prime Minister: “It will be a tough budget, I don’t want to make any bones about that, it will be a tough budget. The people of Australia elected us to deliver a tough budget.”

Bill Shorten, Opposition Leader: “He’s going after Medicare, he’s going after increasing peoples taxes if he wants a fight, we will give it to him.”

Yesterday’s Commission of Audit report recommended the states take on more health and education responsibilities, from the Commonwealth.

Campbell Newman, Qld Premier: “We need to actually sort out who does what in 2014.”

Proposed changes to the way the GST “pie” is distributed drew fighting words from the Premiers.

Will Hodgman, Tasmanian Premier: “I will fight every step of the way, and will oppose every step of the way, any change to the method of distributing the GST.”

Denis Napthine, Victorian Premier: “We believe Victorians are dudded under the current distribution system of the GST.”

Mr Abbott says his government won’t be responding publicly to any of the commission’s 86 recommendations until the May 13 budget.

Jacob Shields, QUT News.