Prime Minister Malcolm Turnbull says the federal government wants to let the states and territories impose some income taxes of their own, saying the current system is a failure.
Mr Turnbull says he will put forward the idea to premiers that will see the federal government reduce its income tax by an agreed percentage and allow state governments to levy an income tax equal to that amount.
State Premiers have been quick to play down Malcolm Turnbull's proposed tax overhaul to end the funding blame game between federal and state governments.
Under current laws the Federal Government is the sole recipient of income tax.
The Prime Minister wants to reduce the federal government's income tax collection, allowing the states and territories to collect the remainder to fund services like hospitals and schools, instead of going to Canberra for funding.
Mr Turnbull says taxpayers would still pay the same overall rate of income tax but it would give the states and territories more autonomy and end the regular funding blame games with the Commonwealth.
He says the plan recognises there's a fundamental failure with the current system.
