Malcolm Turnbull is facing a big test negotiating with the states over income tax

Australian prime minister Malcolm Turnbull. Photo: Don Arnold/Getty Images

Prime minister Malcolm Turnbull kicks of his face-to-face meetings with state and territory leaders tonight with a group dinner in Canberra.

On Friday they get down to serious fundamental issues including how to raise taxes to fund the nation’s rising health bill at the Council of Australian Governments (COAG) summit.

Turnbull has floated changes to income tax, allowing the state’s to raise their own, as they did prior to World War II.

He calls it “the most fundamental reform to the Federation in generations”.

The deal would allow the states to move away from their reliance on commonwealth grants to run their budgets.

The premiers and chief ministers agreed at the last COAG in December to look at tax reform and revenue sharing options between the federal government and the states.

“It doesn’t in fact involve any new tax,” Turnbull told Radio National.

“It’ll simply be a change to the way in which income tax is allocated — and of course, what it will do is deliver better government because people, politicians and parliaments will be more responsible for more of the money they spend.”

Victoria, South Australia and Tasmania have already said they aren’t keen on that deal.

But Western Australia, which has been getting fewer tax dollars from the Commonwealth because of its mining royalties, is more interested.

Also on the table is an anticipated $5 billion for hospitals. This was taken from the states when Tony Abbott was prime minister.

South Australian Premier Jay Weatherill says: “We haven’t had the details yet, but there is talk that there will be an offer — and there needs to be.”

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