Malcolm Turnbull's state-based income tax idea is dead

Australian prime minister Malcolm Turnbull. Photo: Stefan Postles / Getty Images

Malcolm Turnbull’s latest idea for tax reform – getting states to levy income tax – is dead in the water, with the prime minister conceding he could not achieve consensus at today’s Council of Australian Governments (COAG) meeting.

While the prime minister described the idea, which emerged just four days ago, as “the most fundamental reform to the federation in generations”, he came out of Friday’s meeting to announce “the states will not be levying an income tax,” also ruling out the Commonwealth increasing income tax as it attempts to address the structural problems in the federal budget.

Turnbull had proposed the states and territories levy income tax in order to fund growing health and education budgets, with the prime minister even suggesting that the federal government withdraw from funding public education.

The communiqué following the COAG meeting says the leaders agreed to explore further tax reform, but “there was not a consensus among states and territories to support further consideration of the proposal to levy income tax on their own behalf”.

“It is not there, it has been withdrawn,” the prime minister said, referring to his income tax plan, following the meeting.

The state premiers and territory chief ministers signed a health funding deal over the next three years to June 2020 that will see the federal government offering an extra $2.9 billion sweetener, but any increase in funding will be capped at 6.5% annually. The states has been seeking more money since former PM Tony Abbott cut $57 billion from health budget in 2014.

Growth in commonwealth funding for health will be capped at 6.6 per cent per year, a constraint that the states had been seeking to avoid.

We are positive in terms of what happened with health,” NSW premier Mike Baird said

But funding for the Gillard government’s Gonski program remains unresolved until at least after the 2016 federal election, with no agreement reached between the two tiers of government.

While the prime emphasised that a solution needs to be found to address the structural problems with both the federal and state budgets, the rejection of his income tax proposal follows his rejection of raising the GST and a range of other measures already ruled out with the government wary of how voters will react as a July 2 election looms.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.