Prime Minister Malcolm Turnbull admits his idea to shake-up income tax could result in different rates in different states.
Mr Turnbull will discuss his proposal to cut Commonwealth income tax and allow the states and territories to impose their own levy to fund hospitals and schools when he sits down with premiers in Canberra on Thursday night.
"You could have a different rate of income tax - the differences would be very slight I imagine - between one state and another, but you know that's federalism," he conceded on ABC radio ahead of the gathering.
Mr Turnbull cited the existing differences in land tax, payroll tax and stamp duty between the states.
He said by making states more responsible for how they fund health and education they would spend money much more wisely.
"It is far too easy for the states to go to the federal government ATM," he said.
Mr Turnbull will host premiers at The Lodge in Canberra on Thursday night ahead of the Council of Australian Governments meeting on Friday.
