Prime Minister Malcolm Turnbull has warned state premiers to start living within their means as Labor laughs off his failed income tax plan as a humiliating defeat.
The prime minister was forced to withdraw the proposal, just two days after hailing it as one of the greatest reforms in generations, after it was rejected by leaders at Friday's Council of Australian Governments (COAG) meeting.
He had proposed reducing the federal government's income tax collection and allowing the states and territories to collect the remainder to fund services like hospitals and schools - a power the states gave up in the 1940s.
Mr Turnbull on Saturday said the states had repeatedly asked him to raise more money for them via federal government taxes but rejected the opportunity to step up and raise their own money.
"What that means is we must now live within our means," he told reporters in Sydney on Saturday.
"It is a wake-up call for the state governments.
"They cannot any longer credibly ask the federal government to raise taxes for them to spend if they were not prepared to raise those taxes themselves."
Opposition Leader Bill Shorten said Mr Turnbull's crazy idea of double taxation had been a "humiliating farce".
"He doesn't even have the courage of his convictions."
Labor frontbencher Jason Clare said he'd had hangovers that lasted longer than Mr Turnbull's policy.
"I think Britney Spears' first marriage lasted longer than this policy."
Health Minister Sussan Ley slammed the state premiers, denying the proposal's defeat was an embarrassment.
"They're quick to ask the Commonwealth to do their dirty work," she told reporters in Melbourne.
"We should never make an apology for having big ideas and the courage to make a difference."
Ms Ley took aim at Victorian Premier Daniel Andrews, insisting it was time he put his money where his mouth is, having given the Commonwealth long lists of things he wants funded.
The closer a health dollar fell to the patient, the more effective that money would be, Ms Ley said.
But the existing arrangement between federal and state governments left a lot of money spent on bureaucracy and less on the frontline in hospitals.
Foreign Minister Julie Bishop said the prime minister would have expected sensible dialogue, but some states just wanted to pass the buck to the Commonwealth.
"I think that, in time, the states will see some of these opportunities more positively and I hope that there will be a dialogue that will lead to an assumption by the states of greater responsibility for their actions," she told reporters in Washington.
Independent senator Nick Xenophon said it was a thought bubble that was always going to burst.
"I thought Marty McFly was the policy adviser," Senator Xenophon told the Seven Network, referring to a character from the Back to the Future films.
Friday's meeting ended with state and territory leaders accepting an extra $2.9 billion for their hospitals to 2020.
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