Wide differentials continue to exist in mortality rates and other health outcomes between Aboriginal and non-Aboriginal Australians. In the Northern Territory (NT), where Aborigines make up 24% of the population, the all-causes age-adjusted Standardised Mortality Ratio for Aborigines compared to non-Aborigines has remained above 3 since the late 1970s, with significant regional variations. During 1995 an expenditure analysis was undertaken for primary health care (PHC) services in different regions of the NT and compared to mortality ratios. At the same time a method for needs-based funding was being developed which could replace the existing historical funding arrangements. In the first instance, the application of a simplified version of this Resource Allocation Formula (RAF) resulted in a significant shift of resources for new prevention program funding to regions of relatively high mortality and low per capita PHC expenditure. However, developing RAFs to redistribute at the margin within the NT is likely to generate further inequities between losing NT programs and counterparts in other states. If outcomes-based resource allocation is to be meaningful nationally, the reference point for the RAF should be national average PHC expenditure rather than existing state averages. There is a need for a combined approach to outcomes-based planning which takes into account both the equity arguments of resource allocation models and efficacy arguments to maximise health gains. Some of these arguments are explored in this paper.