Kristina Keneally has this morning agreed to cede 30 per cent of the state’s GST to fund the Rudd government’s health reform plan in moves that will increase pressure on Victoria and Western Australia to agree to the change.

Ms Keneally made the announcement this morning after a breakfast meeting of the State and Territory leaders.

The Council of Australian Governments meeting with the Prime Minister, Kevin Rudd, resumes at 9.30am.

As forecast in today’s Herald, NSW broke ranks with Victoria and Western Australia over the GST revenue which Mr Rudd wants to keep and rebadge as Commonwealth revenue to fund his reforms.

This would enable the Commonwealth to lay claim to being the dominant funder of the health system and give it greater control.

Ms Keneally had won from the Commonwealth a guarantee to provide growth funding for future blowouts in health funding health and has now won support from Mr Rudd for all the health funding – state and federal – to be put into a single pool from which it will be administered. Mr Rudd has also agreed to give NSW more money to help implement the reforms.

Ms Keneally’s decision this morning is a huge boon for Mr Rudd. Had NSW and Victoria united against the GST component, the health plan would have been sunk. Mr Rudd and the other Premiers who support the plan will use NSW to pressure Victoria and WA today.

Victoria’s John Brumby and Western Australia’s Colin Barnett have agreed to quarantine 30 per cent of their GST and dedicate it towards health. This was Ms Keneally’s first position, which Mr Rudd rejected four days ago because it does not give the Commonwealth control of the money.

Late yesterday, Mr Rudd gave the states another $1.5 billion for emergency departments, mental health and elective surgery.

Phillip Coorey is the Sydney Morning Herald’s Chief Political Corespondent