Speaking at CEDA's State of the Nation conference held in Parliament House, Mr Shorten said budget cuts are an attack on the states and putting Australia's federation at risk.
"This year's Budget also contained a surprise attack on the State Governments of Australia," he said.
"A dramatic and reckless destabilising of our Federation."
Mr Shorten said the expected $80 billion cuts to Australian schools and hospitals and withdrawal of Government funding from these key areas will have a major impact on Australians.
"Demanding the States do much more, with much less, will have a catastrophic impact on Australian hospitals and Australian schools," he said.
"Behind the Government's sophistry, there will be deeply harmful consequences for our society and our community."
According to Mr Shorten, ospital treatments and services will be slower and nurses, doctors, teachers and classroom assistants will lose their jobs.
"Hospital beds will close, treatments will be delayed or denied and nurses and doctors will lose their jobs," he said.
"Learning outcomes will suffer, schools will close and teachers and classroom assistants will lose their jobs."
"That's when you realise for the first time in Australia history, the Commonwealth itself poses a sovereign risk to the states.