STATE education systems will be rewarded for giving school principals greater control over budgets, including teacher salaries.

In NSW, the Department of Education has central control over staffing salaries, unlike Victoria, where principals manage the entire school budget.

The move has raised concerns about whether principals would give greater priority to budget concerns and lose sight of educational priorities.

Under the Commonwealth agreement with the states forged at the weekend, NSW could attract greater levels of funding if it devolves the management of teacher salaries to principals. This would come under the initiative to give principals greater control over hiring and firing staff and rewarding quality teachers.

The president of the NSW Teachers Federation, Bob Lipscombe, said there was no evidence that similar models used overseas improved education quality. "Principals should be the educational leaders in their schools," he said. "They should not be responsible for the total financial operation of their school.

"While we support professional development of teachers and school leaders, we don't suggest giving principals greater power to hire and fire does anything to improve greater quality."

The president of the NSW Secondary Principals Council, Jim McAlpine, welcomed giving principals greater autonomy over staffing.

The president of the NSW Primary Principals Association, Geoff Scott, said his organisation would like to "explore the possibilities" of controlling school budgets. But there would need to be a balance between controlling teacher salaries and maintaining a collegiate environment.

"We'd have to look at any proposals for devolving staffing budgets to schools and see what the advantages would be for our schools," he said.

At worst, he said, the model might encourage principals to hire cheaper, low-quality teachers to stay within their budgets.

Mr Scott welcomed the Federal Government's decision to increase primary school funding to the same level as high school funding, after eight years of disparity.

The NSW Minister for Education, Verity Firth, said a final decision on the extent to which principals might manage teacher salaries had not been finalised. She said the Government supported moves to promote the leadership of school principals. "The methods to do so are still being considered," Ms Firth said.