The federal government will circumvent restrictions placed on its asset recycling policy by appropriating money from ­general revenue to give to the states as a reward for privatising assets.

Determined not to be thwarted by the Senate, Treasurer Joe Hockey will use appropriation measures that cannot be blocked without blocking supply.

And to stop the states being penalised financially for receiving the reward ­payments, Mr Hockey has written to the Commonwealth Grants Commission ­urging it to not take into consideration the payments when it determines the ­allocation of GST revenue to the states and territories. Typically, the commission takes into account income from all sources when determining how much GST revenue a state receives.

A spokesperson for Treasurer Joe Hockey slammed the Labor amendments. Photo: Alex Ellinghausen

Under the asset recycling policy, states that privatise an asset and then spend the proceeds on productivity-boosting ­infrastructure, will receive an extra 15 per cent contribution from the Commonwealth towards that infrastructure project. The money will be paid from a $5 billion fund set aside in the May federal budget.

States have until June 30, 2016 to have earmarked assets for sale and projects to be built from the proceeds.